Buying real estate is quite the investment. Most often, when businesses are looking for commercial real estate, the loan they acquire can play a large role in the success—or lack thereof—of their company. The kind of commercial real estate loan you can receive depends largely upon property type, location, condition, value of the property, and the amount of income stream it can generate.

There are many different factors included in determining how much money a business can receive via a commercial real estate loan. As a general rule the most money you are able to borrow against investment and commercial property is eighty percent. The only exception to this rule is for owner-occupied business properties that receive money through the Small Business Administration loan program (SBA). Some lenders will limit the maximum Loan-to-Value (LTV) to as low as sixty to seventy percent. “Lite-Doc” programs may also limit LTV to as low as fifty to sixty percent, which varies by location, condition, and property type.

Lenders most often are in search of some cushion built into the loan for both the value and the income-stream. This means that they will lend less than the full value of the property and will require that the loan payments be less than the income the property is capable of generating.

A commercial real estate loan will not enable you to borrow more than eighty percent of the property value. This is because lenders consider commercial and investment property riskier than regular home real estate. Lenders will therefore not lend as much of the property’s value since this kind of property is subject to more fluctuations in value than residential property. Real estate loans are also riskier for the lender because borrowers are usually more diligent in repaying their Mortgage when it is paying for the roof over their head. Lenders have learned that investors are much more attentive to their property and their commercial mortgage when they have substantial cash Equity in the transaction. This means, for lenders of a commercial real estate loan, that investors are fully participating in the risk.

The categories of Closing Costs for a commercial or investment property are very similar to a mortgage for a home, yet they can often be more expensive. Appraisals are more detailed and can often cost up to thousands of dollars since the appraiser must use valuation methods to realize the actual value of the property. Other costs are more similar to residential mortgage loans and can include things like lenders’ origination Fees, application fees, underwriting and document preparation Charges, lawyer fees, survey, insurance and taxes, and more.

A residential property Appraisal for an owner occupied home will usually only cost a couple hundred dollars since the valuation is based solely on the sale of comparable properties in the area. This is why commercial property appraisals cost so much. Commercial producing properties are not as easy to compare due to their vast differences in construction, design, and functions. It is also difficult because the appraiser must consider the income that the property is capable of generating. A commercial real estate loan is far different and more complex than a residential mortgage loan. However, this kind of loan can be extremely beneficial for anyone looking to acquire commercial real estate who would like the help of a loan. There is abundant information regarding this kind of loan on the Internet for anyone interested.