Mortgage Loans: They Aren’t all Created Equal

Mortgage Loans: They Aren’t all Created Equal

Occasionally, someone will sell their building on a land contract. This mean the buyer puts down an agreed upon amount and then the owner finances the loan based upon an agreed number of years, amortization schedule, and interest rate. Usually, these loans are for 5 to 7 years, and any unpaid amount owed is due at the end. This is called a balloon payment. It is critical if you are buying on a landlord contract that the owner owns the building free and clear. If they don’t, then you will need to look at the terms of their mortgage to see if the bank has provided the right for a 3rd party to assume the mortgage. Most banks won’t allow this to happen. Even if you have an agent working on your behalf, you will need an attorney to help you through this transaction.
There are three major types of loans out there:
1. Those for doctors and dentists, who can get a zero-down loan
2. SBA mortgages
3. Commercial mortgages
If your business is going to occupy 51% or more of the space, you may qualify for a Small Business Administration (SBA) loan. This loan only requires a 10% down payment; however, as the business owner, you must personally guarantee repayment, which means that your personal assets may be used as collateral for repayment of the loan. These loans are offered at many banks.
Many firms will get a traditional commercial mortgage. These are a lot like a residential mortgage loan; however, the terms will be different. Usually, the bank will want a larger down payment. Expect to pay 25 to 30% of the purchase price, or more, depending on your credit. The interest rate will depend on the company financing the loan. It is useful to get prices from several banks/credit unions. The biggest difference with this type of loan is that the loan may be amortized over 20 or 30 years, but the actual term of the loan from the bank is usually for 5 to 10 years. That means that you must get a new loan every time yours expires. Historically, this wasn’t an issue; however, with the collapse of the real estate market between 2008 and 2012, many buildings could not be appraised at the necessary rate, as their value had dropped too much. This is why so many buildings were foreclosed on during this period.

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