The Differences between Residential and Commercial Mortgages
The Differences between Residential and Commercial Mortgages
When an individual contacts their bank or mortgage lender for a loan there is an automated system which evaluates the applicants income, financial commitments and general status. This evaluation is then measured against a set of known predictors which gives the lender an overview of how likely they are to get their money back. This automated process is widely known as “credit scoring” which is different from “credit checking”.
When a business approaches a commercial lender for a commercial loan there is a different set of variables to consider. In the case of a commercial mortgage the commercial lender will obviously need a full background of the business they are lending money to. These background checks will include the people who control the business. Whether you are a director of a limited company or a sole trader you should be prepared to answer questions about your personal circumstances when applying for a commercial loan. Only very strong commercial propositions will avoid the need for personal guarantees.
Drawing parallels between a residential mortgage and a commercial mortgage, you could think about a company’s audited accounts in the same way as an individual’s payslips or P60. A commercial lender will look for evidence that the stated income (profit) is sufficient to cover the loan. A set of audited accounts will give the lender details about the business income, financial commitments and general status. The net profit for a company is then used to evaluate the affordability in the same way that the “take home” pay for an individual is used.
How closely the lender will look at the accounts will depend on the Loan to Value (LTV), the amount of money being borrowed, and general viability of the business. In the current commercial mortgage market there is the option to “self-cert” a business income and thus avoid the need to have accounts examined. But self-cert does of course carry its own ‘price’. Very often the interest rate is higher where supported evidence in the form of audited accounts cannot be provided.
Just like a residential mortgage, a commercial lender will insist on independent verification of the value and condition of the property. This verification is usually carried out by a qualified surveyor who is chosen from a panel of recognised companies. Not all residential surveyors are able to carry out commercial valuations. Depending on the type of business a specialist report may also be required.
So in conclusion, the question most often asked is “Why is a commercial mortgage so much more expensive that a residential one?” Well, in simple terms, the cost of a loan is usually dictated by the perceived risk to the lender, and in reality far more businesses end up in bankruptcy and repossessions than individuals.
The Differences between Residential and Commercial Mortgages - To learn more about this author, visit Chris Clarke's Website.
Like this article? Share it with your friends
There are several important differences between commercial finance and the more mainstream finance that most people are used to.
When an individual contacts their bank or mortgage lender for a loan there is an automated system which evaluates the applicants income, financial commitments and general status. This evaluation is then measured against a set of known predictors which gives the lender an overview of how likely they are to get their money back. This automated process is widely known as “credit scoring” which is different from “credit checking”.
When a business approaches a commercial lender for a commercial loan there is a different set of variables to consider. In the case of a commercial mortgage the commercial lender will obviously need a full background of the business they are lending money to. These background checks will include the people who control the business. Whether you are a director of a limited company or a sole trader you should be prepared to answer questions about your personal circumstances when applying for a commercial loan. Only very strong commercial propositions will avoid the need for personal guarantees.
Drawing parallels between a residential mortgage and a commercial mortgage, you could think about a company’s audited accounts in the same way as an individual’s payslips or P60. A commercial lender will look for evidence that the stated income (profit) is sufficient to cover the loan. A set of audited accounts will give the lender details about the business income, financial commitments and general status. The net profit for a company is then used to evaluate the affordability in the same way that the “take home” pay for an individual is used.
How closely the lender will look at the accounts will depend on the Loan to Value (LTV), the amount of money being borrowed, and general viability of the business. In the current commercial mortgage market there is the option to “self-cert” a business income and thus avoid the need to have accounts examined. But self-cert does of course carry its own ‘price’. Very often the interest rate is higher where supported evidence in the form of audited accounts cannot be provided.
Just like a residential mortgage, a commercial lender will insist on independent verification of the value and condition of the property. This verification is usually carried out by a qualified surveyor who is chosen from a panel of recognised companies. Not all residential surveyors are able to carry out commercial valuations. Depending on the type of business a specialist report may also be required.
So in conclusion, the question most often asked is “Why is a commercial mortgage so much more expensive that a residential one?” Well, in simple terms, the cost of a loan is usually dictated by the perceived risk to the lender, and in reality far more businesses end up in bankruptcy and repossessions than individuals.
The Differences between Residential and Commercial Mortgages - To learn more about this author, visit Chris Clarke's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
|
For an online Car Loan Calculator and finance for a cheap car loan. Get approved on car loans or car finance in Australia with cheap bank car loans and finding a car finance broker. Commercial car loans including business car finance and car lease. Car Loan Calculator has information on finance companies and getting the right cheap car loan from banks at best car loan rates and a online car loan calculator for all finance in Australia. Get the best car finance with our help at Car Loan Calculator and Finance Ezi. - Visit Richard Jefferies's Website |
|||
|
To learn more about the Evan Elite Author Program please contact us. | |||
 | |
|  |
Subscribe to Chris's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
 | ||
 |
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 Breakdown, Breakthrough SEO Made Simple Sample Chapter Working with Wisdom Referral Strategies Program Health Check |
|
 | ||
 |
Top 50 SEO Posts - 2007
Top SEO Posts of the Year | |
 |
Top 50 Political Blogs
Top Political Blogs of 2009 | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
| ||||||||||||
| ||||||||||||
|
|
||||||||||||