How Much Deposit Do I Need For A Commercial Mortgage?
Trying to find how much deposit you will need for a commercial mortgage? Whatever your business, here are things you need to know:
Commercial mortgages are tailored financial products. Each application is assessed on its own merits with rates and terms dependent on the perceived level of risks. One of the major factors in determining the risks for lenders is the amount of deposits the borrower can put down. This blog will look at how your deposit can affect your application, ways you can maximize the amount you can put down, and how a professional broker can help your deposit funds go further.
Commercial Mortgages – How Much Deposit Do You Need?
In most situations, you would need to put down a deposit of between 20% to 40% of the purchase price for a commercial mortgage.
The amount of deposit will proportionally affect the range of lenders that you can consider, so it is crucial to find the mortgage provider who is professional and offers favorable rates to a customer with your deposit size and source.
Types of Mortgages
There are two types of commercial loans:
- Owner-occupier mortgage: If you plan to run your business from the property you are purchasing.
- Commercial investment mortgage: If you plan to let out the sites to someone else.
Commercial mortgages are considered at high risk by creditors as your ability to make repayments is based not only on the success of your business but that of your occupants. There is also the risk of void periods where you are not receiving any rental income.
The maximum loan to value (LTV) for an owner-occupied mortgage is usually 80% which would require a deposit of 20% or above. Commercial mortgage lenders typically expect around 25% deposit as a minimum.
Options for Borrowers with Low Deposit
It is possible to get loans with a low deposit, but it can be more complex.
You can even secure commercial mortgages with no cash deposit. To do this, you would need to show your assets as security against the loan. These may be assets owned by the business or personally.
If your asset is another property, you can borrow against your equity. If you have a mortgage on the asset, the provider will need to approve a second charge. There might be another option that you can borrow against other assets such as equipment. The only drawback with low deposit is that you will have a smaller pool of lenders as you will be considered at higher risk. This can result in higher rates in some cases.
Whether you have zero cash or a large amount to deposit, negotiation over your deal can save you thousands over the term of your loan. A broker can help you find the best lenders and deals.