If you are interested in buying or refinancing a commercial property, you might be wondering if you can get a 30-year mortgage on it.
A 30-year mortgage is a loan that has a fixed interest rate and a repayment term of 30 years.
It is the most common type of mortgage for residential properties, but what about commercial properties?
The answer to this question is yes, you can get a 30-year mortgage on commercial property.
However, there are some things to keep in mind when doing so.
In this article, I will explain the pros and cons of getting a 30-year mortgage on commercial property, the types of lenders and loans that offer it, and the factors that affect your eligibility and rates.
I will also provide some tips and resources that will help you find the best deal for your situation.
Pros and Cons of Getting a 30 Year Mortgage on Commercial Property
Getting a 30 year mortgage on commercial property has some advantages and disadvantages that you should consider before applying for one.
Here are some of them:
Pros of 30 Year Mortgage
- Lower monthly payments: A 30 year mortgage has lower monthly payments than a shorter-term loan, such as a 15 or 20 year mortgage. This can help you improve your cash flow and save money for other expenses or investments.
- More flexibility: A 30 year mortgage gives you more flexibility to manage your finances and adjust to changing market conditions. You can choose to pay more than the minimum amount each month to reduce your interest costs and pay off your loan faster. You can also refinance your loan if you find a better rate or term in the future.
- Tax benefits: A 30 year mortgage allows you to deduct the interest payments from your taxable income, which can lower your tax liability and increase your net income.
Cons of 30 Year Mortgage
- Higher interest costs: A 30 year mortgage has higher interest costs than a shorter-term loan, because you pay interest for a longer period of time. This means that you end up paying more money to the lender over the life of the loan.
- Higher interest rates: A 30 year mortgage typically has higher interest rates than a shorter-term loan, because it poses more risk to the lender. The longer the loan term, the more uncertainty there is about the future value of the property and the borrower’s ability to repay the loan.
- Less equity: A 30 year mortgage builds equity slower than a shorter-term loan, because you pay more interest and less principal each month. Equity is the difference between the value of your property and the amount that you owe on your loan. The more equity you have, the more wealth and security you have.
Types of Lenders and Loans That Offer a 30-Year Mortgage on Commercial Property
Not every lender or loan type offers a 30 year mortgage on commercial property.
In fact, many traditional lenders, such as banks and credit unions, only offer shorter-term loans for commercial properties, such as 5, 10, or 15 years.
This is because they prefer to limit their exposure and risk on commercial properties, which are more volatile and complex than residential properties.
However, there are some lenders and loan types that do offer a 30-year mortgage on commercial property. These include:
- SBA loans: These are loans that are partially guaranteed by the Small Business Administration (SBA), a federal agency that supports small businesses. SBA loans include two main programs for commercial real estate: the SBA 7 (a) loan and the SBA 504 loan. Both programs offer up to $5 million in financing for up to 25 years at competitive interest rates.
- Conventional loans: These are loans that are not insured or guaranteed by any government agency. They are offered by various lenders, such as banks, credit unions, or online platforms. Conventional loans can offer up to $5 million in financing for up to 30 years at variable interest rates.
- Hard money loans: These are loans that are provided by private investors or companies that specialize in short-term financing for real estate investors. Hard money loans can offer up to $5 million in financing for up to two years at high interest rates.
Each type of lender and loan has its own advantages and disadvantages, as well as its own eligibility criteria, application process, fees, and terms. You should compare different options and choose the one that best suits your needs and goals.
Factors That Affect Your Eligibility and Rates for a 30 Year Mortgage on Commercial Property
Getting approved for a 30 year mortgage on commercial property is not easy.
You need to meet certain requirements and demonstrate your ability and willingness to repay the loan.
Some of the factors that affect your eligibility and rates for a 30 year mortgage on commercial property are:
- Your credit score: Your credit score is a measure of your creditworthiness and financial history. It reflects how well you have managed your debt and payments in the past. The higher your credit score, the more likely you are to get approved and get a lower interest rate.
- Your income: Your income is a measure of your financial stability and capacity to repay the loan. It includes your salary, wages, bonuses, commissions, dividends, interest, and other sources of income. The higher your income, the more likely you are to get approved and get a lower interest rate.
- Your debt-to-income ratio: Your debt-to-income ratio is a measure of your debt obligations relative to your income. It is calculated by dividing your total monthly debt payments by your gross monthly income. The lower your debt-to-income ratio, the more likely you are to get approved and get a lower interest rate.
- Your loan-to-value ratio: Your loan-to-value ratio is a measure of your loan amount relative to the value of your property. It is calculated by dividing your loan amount by the appraised value or purchase price of your property. The lower your loan-to-value ratio, the more likely you are to get approved and get a lower interest rate.
- Your property type: Your property type is a factor that affects the risk and return of your investment. Different types of properties have different characteristics, such as location, size, condition, occupancy, cash flow, and appreciation potential. Some types of properties are more desirable and profitable than others, such as multifamily, office, or retail properties. The more desirable and profitable your property type, the more likely you are to get approved and get a lower interest rate.
Tips and Resources for Finding the Best Deal for a 30 Year Mortgage on Commercial Property
Finding the best deal for a 30 year mortgage on commercial property can be challenging and time-consuming.
However, there are some tips and resources that can help you with your search. Here are some of them:
- Shop around: Don’t settle for the first offer you get. Compare different lenders and loan options and look for the best terms and rates for your situation. You can use online tools such as Bankrate or Lendio to find and compare commercial real estate loans from various lenders.
- Negotiate: Don’t be afraid to negotiate with lenders and ask for better terms and rates. You can use your credit score, income, debt-to-income ratio, loan-to-value ratio, property type, and market conditions as leverage to get a better deal.
- Hire a professional: Don’t hesitate to hire a professional who can help you with the process and advise you on the best course of action. You can hire a commercial mortgage broker who can find and arrange the best loan for you. You can also hire a commercial real estate agent to help you find and evaluate potential properties.
Conclusion
A 30-year commercial property mortgage offers fixed interest rates and a lengthy repayment term, but it’s not easily attainable.
To qualify, you must meet specific requirements and demonstrate your ability to repay.
Pros include lower monthly payments, flexibility, and tax benefits, while cons involve higher interest costs, rates, and less equity.
SBA, conventional, and hard money loans are options, each with its own criteria, fees, and terms.
Eligibility and rates depend on factors like credit score, income, and property type.
When pursuing a 30-year commercial property mortgage, shop around, negotiate, and consider professional guidance.
It offers potential investment benefits but necessitates thorough research and consideration.