Commercial Loans
Contributed Articles
Commercial Loans - Commercial Financing is underwritten on a case by case basis. Every loan application is unique and evaluated on its own merits, but there are a few common criteria lenders look for in commercial loan packages.
Financial Analysis
A key component in making an underwriting evaluation is the debt coverage ratio (DCR). The DCR is defined as the monthly debt compared to the net monthly income of the investment property in question.
Loan to Value
Most commercial lenders will require a minimum of 20% of the purchase price to be paid by the buyer. The remaining 80% can be in the form of a mortgage provided by either a bank or mortgage company.
Credit Worthiness
For businesses less than three years old, personal credit of principals will be evaluated. This may hold true for longer periods of time for tightly held companies. For corporations, business performance and credit ratings will be evaluated with a proven track record.
Property Analysis
Fair Market Value and Fair Market Rent will be analyzed. Special use property may require additional underwriting. Age, appearance, local market, location, and accessibility are some other factors considered.
The most important ratio to understand when making income property loans is the debt service coverage ratio. It equals Net Operating Income (NOI) divided by Total Debt Service.
It has a wide utility. It can be used for- extension of current business premises, funding property development, investment in residential and commercial properties, etc. It has a plus point, as the borrower can have an access to the mortgage, with minimal upfront payment. In this the preset mortgage schedules sanction greater flexibility, so the borrower can mould this type of mortgage as per the suitability.
Unlike residential loans that are borrower and credit based, commercial lending is asset based, meaning that the loan is giving on the quality of the property and the cash flow potential of the property.
Aside from being generally more expensive than residential loans, commercial loans also take longer to close. Depending on the property and the scenario, you should allow a few more weeks for a commercial loan to close. So if you know that you need to get something done by a certain date, it is in your best interest to contact a mortgage professional as soon as you know what you want to do.
You want to make sure your property is free of any liens and to do this the title company will run a UCC search. When a person or company wishes to file a lien on commercial property there are different steps that have to be taken which are outlined in Article 9 of the UCC (Uniform Commercial Code). This search will find any liens that have been filed on the property.
Commercial loans are for the most part a little harder to get than a residential loan.
Because higher loan amounts are often associated with Commercial Loans, some commercial lenders may require two appraisals from different certified appraisers if the loan amount exceeds a threshold limit. Certain lenders also require the service of their own approved appraisers.
Commercial properties are those other than a single family residence, 2-family, 3-family, or 4-family home. Properties that are 5 units or more, even though all units are of residential purposes, are considered commercial properties and require commercial financing. "Mixed-use" properties, those with a commercial unit and one or more residential units on the second/third floor, are also financed with commercial loans.
Appraising a commercial property is often more costly than appraising a residence of equal size
Another name for the Debt Coverage Ratio in the context of commercial mortgages is the Debt Service Coverage or Debt Service Coverage Ratio
To calculate the debt service coverage ratio, simply divide the net operating income (NOI) by the mortgage payment(s). For the sake of simplicity, let us assume that there is only one mortgage on the property:
$500,000 First Mortgage
11% Interest, 30 years amortized
Annual Payment (Debt Service) = $57,139
Then:
DSCR = Net Operating Income (NOI) = $65,000
Total Debt Service $57,139
DSCR = 1.14
Most lenders will have a set Debt Coverage Ratio that they will want to see when considering underwriting the project. For example, retail property lenders may want to see a 1.3 DCR and an apartment lender may want to see a DCR of 1.2 or 1.25. The riskier the project, the higher the DCR.
There are several Lenders that will fund small commercial projects, similar to residential financing. Ask your Broker or Banker about these companies.
Depending on the market value and equity which you may have in your home or any other residential properties you may already own, it may be possible for you to refinance or obtain a second mortgage or HELOC to help cover all or part of a small to medium sized commercial real estate investment.
Commercial Loans have much more rigorous and often more expensive appraisal processes than residential loans.
Commercial Loans are required for apartment buildings above 4 units.
Commercial Mortgage - Commercial Mortgage are loans secured by commercial properties. Typical properties requiring commercial mortgage financing are retail stores, offices, warehouses, gas stations, strip mall, and apartment buildings. Commercial mortgage is underwritten in a manner much different than residential loans.
Often the underwriting of a commercial loan looks at what is called the Debt Service Coverage Ratio, or DSCR. This tells the investor what the property's ability to cover the debt load. Typically lenders look for a figure of 1.2 or better DSCR which essentially means that the property's income exceeds the expenses by 20%, and would be considered a performing, income producing property.
Depending on the state that you reside in, commercial mortgages are also available for any property that has 4 or more units on one lot.
Commercial mortgages come with their own guidelines and qualification requirements that differ from residential mortgages. It is best to contact a mortgage professional to discuss what options you may have regarding your unique property type.
The qualifying criteria for commercial mortgages vary greatly depending on what type of commercial property you are trying to finace. For example, it is much more difficult to finance a resturant than an apartment building.
Small Commercial Lending - Small commercial property owners have a new way to obtain a mortgage. What we call "out of the bank" small commercial lending allows for a mix between the traditional bank and the hard money lender. Such programs allow stated income and stated assets, high loan to values, and easier debt servicing coverage ratios (DSCR). These programs are a perfect fit for cash businesses such as restaurants and laundrymats, as well as non-cash businesses such as apartment complexes, retail strips and hotels/motels. They are also good for the borrower that can not get a loan from the bank for one reason or the other.
Small balance commercial lending (from $100k to $3Million) has become a hot market over the last several years as Wall Street investors have recognized the significance (and returns) from the pools of performing loans. As the small commercial mortgage industry gains momentum, rates and programs will become more and more competitive and offer programs for what used to be considered "local bank" or "hard money" paper.
Mixed Use Properties are also considered small commercial.
A Mixed Use Property is a building that has commercial space on the street level (can be a restaurant, store etc...) and on the 2nd and/or 3rd floor are residential apartments.
In New York City there are thousands of mixed use properties.
Financing is available on these types of proprieties by calling (800)290-4770 or at Commercial@Centuriant.com
Another advantage of working with these small commercial lenders is that, in most cases, you do not need a complete phase I environmental report. Instead the lender takes out an an environmental insurance policy which the borower pays for. These policies generally cost around $2,000 versus $10,000 to $20,000 for a full phase I report. This also allows them to loan to businesses that have difficulty getting standard commercial loans - such as auto repair shops.
These type of loans also close quicker than most commercial loans because they are not going to tie the borrower up with all the red tape paperwork that a bank may ask for. Approvals are usually with 48 hours and closing is usually 30-45 days. The appraisal takes the longest time so if time is of an essence and the business is looking for permanent financing, these small commercial resoruces are the way to go.
Multifamily Financing - Multifamily housing is a type of residential property that has more than one unit in the same building.
Multifamily housing can be divided into 2 sections:
2-4 units: duplexes, triplexes, and quadruplexes (4 units)
5+ units: apartment buildings
In certain areas, such as the New York and Los Angeles metropolitan areas, many homes which appear to be single family residences for all intents and purposes are actually legally 2 unit properties, or duplexes, which have been converted into single family living spaces internally but are still in the eyes of the local housing board a multifamily property.
FHA Loans are a good option when looking to purchase a 2-4 Unit primary residence.
The property with 2 - 4 multi units are considered as a residential property. Thus there are more opportunities and easier to finance this type of property through regular mortgage lenders.
However, the property with 5+ units are considered as a commercial building. Then the broker usually has to go outside of boundary to look for fund from commercial lenders.
Some loan programs allow existing rent on mutli-family properties to be included as your income. You'll need to show that the units have leases to prove the rental income. However, the rent may be discounted by up to 75% per underwriting guidelines.
Multi-family mortgages usually have stricter qualifying criteria. While a homebuyer can qualify for a single family residence loan with certain credit scores, the same home buyer would need higher credit scores to qualify for a mortgage secured by multi-family houses. In some cases he may have to put up a bigger down payment and borrow at a lower loan-to-value ratio.
Conforming loan limits increase for Multi Family dwellings. The greater the number of units (to a limit of four) the greater the conforming loan limit will be in the properties respective state.
Generally the more units a property has the tougher the financing will be. The requirements are usually a little more strict with more units to a property and the rates are usually a little higher to go along with the home loan too. One reason for this is due to the fact that multi-unit properties are a higher risk to a lender. Many people buying multi-unit properties are relying on rental income to be produced from these properties, and if they go unrented for any period of time this may put the homeowner into a bind and could cause some problems with making their payments on time or even at all.
The ability to secure 100% financing usually stops at 4 unit buildings. Any building that has 5 units generally require a down payment of up to 20%.
Generally multi unit financing will require a larger downpayment. Also, lenders will look at the income produced in making a lending decision.
Duplex type homes are looked as multi family. Their is a variety of duplex homes from 2-4 units.
Loans for Investment Properties - Acquiring investment properties has become much more simplified in regards to the financing options available. Todays mortgage programs can allow you up to 100% financing of your investment property. There are several different loan options available that are set up to maximize your cash flow.
A cash flow investor might opt to put 5% or 10% down when acquiring a property. This may allow the investor to obtain favorable financing terms and a lower mortgage payment.
If you are purchasing a home that is in a state of disrepair, you may want to look at a renovation or rehabilitation loan. Lenders will loan on investment properties up to 90% of the after repaired value. Monies are given out on a draw schedule similar to a construction loan.
Investors find these types of loans favorable due to not having to pay for repairs and remodeling out of pocket.
The flexibility of a pay option ARM is also a useful tool to investment property owners. Several of my borrowers use this loan not to increase cash flow, but to maximize the use of the rental income. While the property is rented they make the highest payment they can with just the rent, when the property is vacant between renters they utilize the minimum payment so there out of pocket expense is minimized. Investment property owners can also utilize the minimum payments if repairs are needed, etc. The minimum payment can off set the out of pocket expense of repairs and maintenance
Although it may seem like easy money, making money in real estate investing is a skill that takes research and experience to acquire. It requires a good plan and an understanding of the processes involved to either rehab a home or renting to tenants. Make sure you do your research and understand what you are undertaking. The last thing you want to do is put yourself into a situation where the property you buy costs you money every month.
Loans for investment properties are generally much more risky than owner occupied homes. To offset this risk the lender may require a higher down payment and a slightly higher interest rate. Also, if the investment property will be income producing then the lender will restrict how much of this income can be used towards loan qualification. Ask your preferred mortgage professional about the implications of buying an investment property with a mortgage.
Investment loans are so flexible they are allowing many investors to get into the game. It is a good idea to speak to your Mortgage Broker to see how we can get you an investment loan also!
In the world of real estate investing, a property that generates monthly cash inflow is always considered a sound investment. To create a positive cash flow situation, investors often prefer "interest only" mortgage products, which requires the homeowner to make monthly payments on only the interest accrued for the prior month. Because "interest only" payments are always lower than fully amortized payments, investors have a better chance of creating a monthly cash inflow.
Investment loans are similar to the same types of loans are available for owner-occupied personal residences. The main differences for investment property loans are that you pay a slightly higher interest rate and there are some down payment requirements.
Loans for investment properties are a good way to purchase properties without using your own assets. Properties consisting of 1 to 4 units can be financed with a residential loan while properties of 5 units or more are financed with commercial loans.
Loans for investment properties can be more complicated than residential loans. Lenders will look to rent rolls and income to determine whether to make an investment property loan.
Loans for investment properties having more than 4 units are considered "commercial" loans for the purposes of obtaining a mortgage.
A Pay Option ARM and an interest only loan are great choices for mortgages on your investment properties. These will allow you to have the lowest payments possible to help you utilize your cash flow to its fullest potential. There are many more loan programs now for investment properties than there were a while back. You will generally pay a somewhat higher rate on an investment property than you would on an owner occupied property due to the higher risk involved to the lender.
The Pay Option ARM is a loan that allows you to make a minimum payment that is actually LESS than the interest payment. The amount you owe on the mortgage will actually go up each month, but your payments will be very small. For investors who will be making a great deal of money off of their property, this loan may be a great tool to maximize your cash flow.
Bridge loan - A short-term loan, that "bridges" the period between the closing date of a home purchase and the closing date of a home sale.
Bridge Mortgages are used to buy a new home before the current residence is sold. There are risks associated with Bridge Loans. In a slow real estate market, after purchasing his new residence, a borrower may not be able to sell his old property within the time frame as he anticipates, or the sale of his old home may fall apart. If any of these situations should arise, the borrower would have two mortgage payments for longer than he expects, one on the new home and the other on the Bridge Mortgage, which may prove to be disastrous to his financial health.
Bridge loans have lost their popularity in recent years because there are more second mortgage lenders, that will loan more money on your equity value. Plus most sellers would prefer to accept offers from people that already sold their property.
Bridge loan programs bear more similarity to "hard money" or "private money" type loan programs than they do to conventional second mortgages or home equity loan / home equity line of credit (HELOC) products
A less costly alternative to borrowing using bridge loan is to use a home equity loan instead. HELOC's as they are commonly called are much cheaper and are open end loans that recast everytime a principle payment is made.
ONe rule you should heed if you're thinking of taking using a Home Equity loan rather that a Bridge loan is this: apply for your home equity loan BEFORE you put your house on the market. Lenders won't let you take out a home equity loan if your property is listed on the MLS (Multiple Listing Service). There maybe some banks that will grant you a home equity loan after your house is listed, but they are few and far between.
Bridge loans are often used for real estate purchases, to quickly close on a property and to take advantage of a short-term financing opportunity in order to secure long term financing.
Without having a specific buyer in mind for you current residence a bridge loan could end up burying you financially.
As in all loan scenarios, when looking a bridge loans, caution needs to be used to determine whether or not this the right situation for you. If you are working with a professional Mortgage Broker they can help show you the upside and downside so you can make an informed decision.
You may be able to pay interest only on the bridge loan and in some cases you may defer all payments until the home is sold allowing you a more comfortable payment.
Bridge loans are also popular for new construction projects as well. This allows the client to put a down payment and get construction started.
The bridge loan is based more on the value of the property than the credit background of the borrower.
A Bridge Loan is a loan that is used for a short duration of time until permanent financing is put in place. They are the perfect solution to timely real estate transactions because they allow a purchaser or investor to act quickly.
Some borrowers use a bridge loan because they find the "perfect" house and want to purchase it immediately. But their current home is still not sold yet. The bridge loan will provide financing to you based on the equity in the future sale of your current home.
Also known as a Swing Loan, Bridge Loan can be used in Residential and Commercial Properties.
Land Contract - An agreement for the sale of a property in which the buyer takes possession while making payments to the seller, but the seller holds title until full payment is made. This type of financing is usually done for people who have less than perfect credit and are having a hard time getting financed for a home loan. Consult your mortgage professional to explore all options.
Land contracts are great where you have the ability to purchase a tract of land that is zoned let's say for agricultural, and you are able while under contract to have the land rezoned for multi-family or commercial use. The will greatly increase the overall value of the land and give it a much higher lendable value. This technique is used successfully quite a bit by developers and speculators.
During the term of the land contract (i.e. while the contract is in force and effect, the buyer is not in default and until all of the payments are made), the buyer holds legal possession of and occupies the property. The land contract can call for transfer of the property once the seller has received all of the required payments or can call for the transfer at some time sooner, with the seller then holding a mortgage on the property to ensure that the balance of the purchase price will be paid in full. Whatever the terms agreed upon for transferring ownership, when the agreed upon transfer date is reached, the seller tenders (or gives) a deed to the property to the buyer who then records the deed in the county recorder's office or the real property office of the county where the property is located.
While leases and liens are recorded, land contracts in most localities are not, making recourse for the buyer rather difficult in the event any problems arise with the relationship or the agreement itself. Prior to entering into a land contract, determine whether or not any encumbrances, such as a mortgage, already exist on the property. if there is a mortgage or other encumbrance on the property, you should explicilty agree in writing that the payments you make under the terms of the land contract will bee applied by the seller first to the servicing of fees, interest & principal associated with the mortgage or lien or other encumbrance, and then to any other purpose. Insist that payment in full shall be made only after title is warranted to be free and clear of encumbrances.
A land contract is when the buyer takes possession but the seller retains title. The buyer will continue to make payments until the terms of the sale are met and then will obtain title from the seller.
Most land contracts are for a specified period of time such as two or three years. After that point you must refinance or payoff the loan in full.
Land Contracts are also known as a Contract for Deed.
Include a clause in the land contract that allows you to prepay the contract amount without penalties. This allows you to improve the property and pay off the loan early or at the time of resale. If the seller does not agree to prepayment terms, negotiate a release clause that permits you (the buyer) to subdivide and sell lots while allowing the seller to release the land to the lot buyers and accept the money from lot sales as installment payments.
Review the terms of a land contract with a real estate attorney or agent before making or accepting any offers.
Because income from the sale of land is taxed as ordinary income, many sellers prefer receiving payments in installments through a land contract instead of receiving payment in one lump some.
Another term used for a land contract is an installment purchase contract.
Mortgage Backed Securities - A mortgage-backed security (MBS) is an asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans. Payments are typically made monthly over the lifetime of the underlying loans.
Residential mortgagors in the United States have the option to pay more than the required monthly payment (curtailment) or pay off the loan in its entirety (prepayment). Because curtailment and prepayment affect the remaining loan principal, the monthly cash flow of a MBS is not known in advance, and therefore presents an additional risk to MBS investors.
Commercial mortgage-backed securities (CMBS) are secured by commercial and multifamily properties (such as apartment buildings, retail or office properties, hotels, industrial properties and other commercial sites). The properties of these loans vary, with longer-term loans (5 years or longer) often being at fixed interest rates and having restrictions on prepayment, while shorter-term loans (1-3 years) are usually at variable rates and freely prepayable.
Mortgage Backed Securities can range from checking accounts to trust funds.
Financing more than a four unit complex - Can I obtain financing for a complex with more than four units?
Yes, you can obtain financing for a complex with more than four units. Typically this is considered a commercial property, therefore you will need to obtain a commercial mortgage. In order to receive financing for a commercial property, you will need generally a minimum of 20% down. Expect your rate to be 10% or higher because a commercial loan is not a typical conventional residential mortgage. Also, the terms differ as well. Contact your local mortgage professional Commercial Lending Group at (800)290-4770 or Commercial@Centuriant.com to determine whether or not you qualify for a commercial mortgage or to determine whether or not the terms are favorable to your project or not.
Balloon Mortgage - A mortgage that is paid in full after a period of years that is shorter than the term of the loan. For Instance, A ten year balloon loan would have its payments calculated over a 20-30 year period, however, the full balance of the loan would have to be paid in ten years. This is often referred to as a 30 due in 10, 30 due in 15 (15 year balloon), etc.
A balloon mortgage is a good way to keep you payments low, keeping in mind that there will be a large payment(balloon) due at the end of the balloon term.
The alternative to a balloon would be to get an Adjustable Rate Mortgage (ARM). An ARM will adjust after the fixed period while the balloon needs to be paid in full or refinanced. We will discuss what is right for you.
There is a way to get around balloon payments in small balanced commercial mortgage. New companies such as SilverHill Financial, and Interbay, have offered programs that are fully amortized up to 30 years. They also have rates that decrease every X amount of years with on time payments.
Considering that 70% small business that include real esate are handed down to the next generation, balloon payments don't really make sense.
Why keep refinancing becuase of a balloon payemnt, when you plan to stay in the property long term. Please talk to your licensed mortgage professional for more information.
Some Borrowers may not have the resources to make the balloon payment at the end of the loan term. A 2 step plan may be used with balloon payment mortgages. Under the two-step plan, sometimes referred to as "reset option", the mortgage note "resets" using current market rates and using a fully-amortizing payment schedule.
A big problem with a balloon loan, is the person needs to be very disciplined in financial planning for the large single payment. Balloon loans are commonly used when refinancing or when a big cash event is coming up.
Most income producing properties are financed with Balloon Mortgages. Investors prefer the lower monthly payments that come with Balloon Mortgages. Everything else being equal, an investment with a constant cash inflow is always better than one that requires capital injection.
Some Balloon Mortgages have an "extendible" feature. Balloons with such feature gives the mortgagor the option to renew, or extend, the mortgage when the balance becomes due, provided that certain conditions are met. The extendible feature can save the mortgagor thousands of dollars in refinance costs. An example of an extendible Balloon Mortgage commonly utilized to finance small commercial properties and multi-unit apartments is the 5-5-5-5-5, in which the payment is amortized over 25 years, but is due in 5 years, with the option to renew the loan at the end of each 5 year period.
In addition to a conventional second mortgage, Home Equity Lines of Credit often have a balloon feature. These HELOCs usually have a draw period, then a repayment period and then a balloon if the line is not pais off by the end of the repayment period.
A balloon mortgage is one where after the initial period the remaining balance is due in one lump sum. Usually a balloon mortgage is refinanced prior to the balloon payment coming due. A balloon mortgage provides the borrower a reduced payment during the initial period.
Don't be afraid of a mortgage with a balloon payment. Statistically these days people move every 4 or 5 years. Often people with a balloon mortgage either move or refinance long before the balloon payment is due.
Second mortgages often are balloon mortgages in order to keep the payments down for the borrower. A 15 year mortgage will have a higher payment than a 15 year balloon mortgage.
Most often the borrower will plan to refinance in a certain period of time to pay off the note before it becomes due.
The difference between residential and commercial - Residential and commercial loans are similar in many ways. However, there are some major differences in the uses for commercial loans, and the way that you qualify for them as opposed to residential loans.
Commercial loans are riskier than residential loans. If someone who owns a residence and commercial property has financial difficulties, they will make sure their home mortgage is paid first and often become delinquent on their commercial property mortgage.
The major difference between the residential mortgage and commercial mortgage is the required minimum down payment that the borrower needs to make. Since there is a higher risk for a commercial mortgage, the lender usually want to see some equity to be paid down by the borrower.
Commercial mortgages in general have higher interest rates and shorter terms than residential mortgages. This is due to the fact that there is a significantly smaller secondary market for commercial loans, whereas Fannie Mae and Freddie Mac would purchase any conforming residential mortgages from banks. Knowing that they can recoup their capital investments by selling their mortgage loans on the secondary market, banks are more willing to offer competitive interest rates on residential loans.
Commercial loans are generally relatively short term, and are refinanced regularly so that owners can pull out profits from their investment tax free as loan proceeds.
It is common for a commercial loan to have a balloon payment at the end.
Commercial Real Estate Financing - Small balance commercial financing is changing rapidly as more lenders enter the enormous market for commercial real estate loans. Typical commercial financing in the past has been very conservative but today there are programs that will allow up to 97% loan to value on commercial owner occuppied properties. In the past, many commercial lenders offered products that required reporting financials year to year, balloon repayment requirements, and a banking relationship. Todays commercial loan market now has straight amortization periods (no balloon), never requiring the borrower to "requalify" for the loan, and up to 30 year fixed rate periods.
Commercial Loans are different than residential loans. Lenders will qualify the property by looking at it's cash-flow as well as qualifying the borrower. The main thing lenders want to see is a positive cash flow after expenses an a commercial property.
Hard Money for Commercial Property - Hard money for commercial property is very much like hard money for residential in most instances. It is typically up to 70% LTV and it is obtained to buy property that is under contract for less than its appriased value due to numerous reasons such as someone is retiring and wants out, someone needs to move and is no longer able to run the business or it is part of an estate. It can also be used to refinance for further construction or improvements of a current owner but who is not able to obtain conventional lending.
The difference is although hard money for commercial is easier to qualify for than conventional means, it is still based on more than just equity. For example it is important that the borrower has experience in the indusrty they are buying the business for, such as a purchaser of a hotel should at least have hopsitality experience. That si just one of the differences.
Real Estate Financing - Real Estate Financing can be residential or commercial financing of real property. This can include single family homes, duplexes, triplexes, quadplexes, apartment buildings, log cabins, commercial buildings, office complexes, condominiums, shopping plazas and much, much more. Normally it is best to do your residential financing with a residential mortgage specialist and your commercial financing with a commercial specialist. While there are many mortgage professionals who are able to do both, it is hard to specialize and be an expert at both. Laws, rules and guidelines are constantly changing and it is hard to keep up with everything and play both sides.
Real Estate financing comes in many different forms. Traditional real estate financing is usually offered by banks but there are many different ways to finance the purchase of real estate. The most common are land contracts, lease options, and seller financed mortgages.
In todays economy it is currently easier to buy a home than it is to get an unsecured credit card.
One of the most common forms of real estate financing used in America is the adjustable rate residential mortgage, however rising short term interest rates are causing many borrowers in these adjustable rate loans to refinance into fixed rate mortgages for their real estate financing needs.
Real estate financing is generally known as a mortgage or home loan. The purpose of a mortgage is to obtain a loan by which the borrower or mortgagor gives the lender or mortgagee a lien on the home. Hence, mortgages are generally known as home loans.
Financing for Real Estate Investors - Owning investment property is a smart choice in todays real estate market. 100% financing programs are available for investors, it usually carries a slightly higher interest rate than owner occupied properties. You can generally purchase 1-4 unit residential real estate with those programs. Any other property type, or requires a commercial loan.
When contemplating an investment property purchase, it is important to account for periods of time when the property will remain unrented, and to have sufficient financial capacity to be able to cover the mortgage payments onthis property even when it becomes unoccupied.
Investing in real estate does take some time and education to do it wisely. You must make sure that if you are buying "fixer-uppers" that you understand what you are getting yourself into before jumping into them. You don't want to end up buying a home that is going to cost more to fix up because of unseen problems than it is worth. If you are going to buy investment properties that are in average to above average condition at the time of the sales you need to make sure you know how much rent is going for in the area, how much rent you would need to get on a monthly basis so you are not losing money, and you need to calculate in for unexpected expenses. There are many times that a water heater may go, the furnace breaks down, a plumbing leak occurs, etc... and these figures need to be accounted and planned for accordingly. There is a great deal to make when becoming involved in buying investment properties, however caution and proper planning is highly advised.
Home Equity Loans and Commercial Lines - All outstanding debt will be considered when applying for any loan. The lender will look at your finances to see if you can afford to take on additional debt. In the case of a home equity loan, they will look at the total amount available, not the current amount owed. So if you owe only a few hundred, but the equity line is for $50,000, when you apply for the commercial loan the loan officer is going to look at it as if you owed the entire $50K because you could go out the next day and max it out.
