Getting An Investment Property Loan – Is It The Right Property?April 19, 2023
This article was written for individuals who are attempting to undertake an investment property loan. In today’s market, it is not good enough to be a strong borrower. So we will discuss the dissimilarities between residential loans and commercial loans. Understanding the difference will help you get your investment property qualified for a investment property mortgage.
I will attempt to explain to you as to “the who, what, and why” of commercial mortgage loan. A big part of your success as a commercial p2p finance is in choosing the right property. What follows is the straight scoop on commercial lending.
One of the most important difference between commercial and residential loans is commercial lenders lend their own money. When you apply to a residential bank or some residential financial institution, they underwrite the loan and then sell the loan to FNMA or FHLMC. The residential bank is repaid the money. Once the loan has been sold to FNMA or FHLMC, the residential lender will keep the servicing rights. Fannie or Freddie then bundle all those loans and pass them through to investors such as mortgage backed securities. In other words, the bank is not really lending their own money.
Commercial investment property loans are different because when you deposit funds into a bank account, the commercial lender turns around and loans out the money to companies like yourself. In commercial mortgage loans there is no giant like FNMA as in residential lending waiting to reimburse the bank.
If an investment property mortgage goes into default from non payment then the bank is stranded with a bad performing loan unless they can sell the property for a profit. Because of this, they are much more discriminating than they would be with residential loans.
Since 80% of all businesses fail within 2 years, the commercial bank knows that if someone does fall into financial difficulty the borrower will let their commercial investment go before their residence. And because investment property loans are commercial loans; the guidelines for underwriting are much stricter on investment property loans. Also understand that each piece of property is completely different and each type of commercial property is underwritten differently. Investment property financing are deal-specific.
In today’s market you have to be a strong borrower and have a strong cash flowing property or no one will loan you the money. The most important part of the commercial underwriting process is the PROPERTY.