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100% Commercial Mortgages | Benefits and Dangers of 100% Commercial Mortgages

One of the most important numbers in your commercial mortgage application is the LTV – or “Loan to Value Ratio.” It refers to the amount of the total value of the property that the loan covers. For example, if you purchased a $1,000,000 property, pay $250,000 down, and then request a loan for the remaining $750,000, that is a 75% LTV (referring to a loan that covers 75% of the value of the property).

Commercial lending requires a personal investment, which is why at minimum the highest LTV that you can receive from most lenders is 80%, and many will not go higher than 75%. In general, it’s expected that you will supply at least 20% of the cost of the loan out of your own pocket.

Costs Can Add Up

Of course, 20% of a commercial property can be expensive. Most of these properties start at $500,000, and some can be sold 5 million dollars or more. Even if you were able to get the down payment to only 10% of the property it would price out new or casual investors.

That’s why the idea of 100% commercial mortgages are so appealing. These mortgages, in theory, cover 100% of the LTV, so that the individual purchasing the property is not required to pay anything out of pocket.

The problem is that 100% commercial mortgages generally do not exist, and if they did they would have their own problems:

  • High Interest Rate – Any 100% LTV commercial mortgage would generally have a very high interest rate, likely several percentage points higher than an 80% LTV. Over the course of the loan that would amount to potentially hundreds of thousands of dollars in losses, as well as more in monthly payments.
  • High Fees – Fees on these loans would be higher because of the amount of work that would go into risk assessment, and the companies that would offer these types of loans are likely to be companies that would add fees up front in order to improve profits.

However, that is not to say it’s impossible to find a 100% commercial mortgage. For example, if you can find a property that is priced at 75% of its market value, it may be possible to secure a loan that covers 100% of your costs. Similarly, it’s possible to take out secured loans on any properties you already own, or look for additional funding sources that do not conflict with the lender’s guidelines.

At CRE Lender, we’re connected to thousands of different lenders and brokers that will work with your needs and see if they can find you the loan you’re looking for. We’re a people-first company, and we’ll do our best to find you the commercial mortgage that meets you needs. Sign up today to find out more. 

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