Whether you’re investing in residential or commercial real estate, you need to know all your financing options. Knowledge is power, and it can also be cash. Some types of financing can get you better rates and terms, and it’s always worth it to shop around.
Here are 3 types of commercial loans you should know.
Senior Mortgage Loan
A senior mortgage loan, also called a first mortgage, is your standard mortgage and applies to residential and commercial real estate. This loan type typically uses the property itself as collateral. If you default on your payments, the senior mortgage loan is first in line to be paid back, even if you have other loans out on the property.
In general, senior mortgages tend to have the lowest interest rates you can get on a property. But remember: different banks and lenders have different rates, so be sure to look at at least 3 lenders before moving forward on your purchase.
Bridge Loans
While it is possible to get a bridge loan in Texas on a residential property, they are far more common in commercial real estate. Bridge loans can come in handy in many scenarios, such as:
- As a down payment for a new property before selling an existing property
- For repairs and renovations
- When you need money quickly, as they tend to close faster than other types of loans
Bridge loans typically have shorter terms and higher interest rates. Expect to have to pay it back between 6 months to 2 years and interest rates from 6% – 15%.
Hard Money Loans
If you have a strong network, hard money loans can be easier to get than traditional bank loans. Hard money loans are provided by private companies or individuals who don’t require as much proof or collateral to get. They can be obtained with as little as the belief that you can pay the loan back.
But because the private lender is taking on more risk, interest rates tend to be higher than senior loans. They also require repayment in less time, often as little as 5 years.
Know Your Options
When it comes to loans for commercial real estate, it always pays to know as much as possible. Also, consider your investment. Will, it cash flow enough to pay back your loans? Will it appreciate over time? It helps to do as much math as possible before you get bound by the terms of a loan.
