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The B.A. Fund

Rules of Thumb with a Commercial Mortgage

If you have ever gotten a residential mortgage to buy a home, you are going to notice a lot of similarities in getting your commercial loan to buy or refinance real estate.

They are both going to require paperwork to be completed. Both types of loans will review your personal and business financials. Both will also base their loan decision on the strength of your loan. Appraisals will need to be ordered, credit reports pulled, and a title searches will need to be done on your property. 

Before a loan can be approved normally someone called an Underwriter will give the final review. Both types of loans will normally have the loan closing at a Title company or real estate attorney’s office. 

There are some big differences between a residential mortgage and a commercial mortgage. Below are some important general rules of thumb differences.

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Residential Mtg

Commercial Mortgage

Required Down Pymt

As little as 3% down payment required for primary residence.

10% down pymt available with an SBA loan.

10% down payment for second homes.

20% down pymt required with most non-SBA loans.​

25% down payment for 2-4-unit investment homes.

25% down pymt normally required for investment properties.

Interest Rate

Fantastic interest rates

Interest rates are at least 1% higher.

Most interest rates are fixed up to 30 years

Most SBA loans have an adjustable interest rate.

Most non-SBA loans only offer 5 - 10 yr fixed rates.

Term of the Loan

30-year term loans are the most popular.

SBA loans can go up to a 25-year term loan.

Most non-SBA loans only offer 5 - 10 year term loans.

Broker Fees

Most brokers are paid by lenders.

Most brokers are paid by borrowers.

Closing Cost - not counting prepaids

On a $500,000 loan, closing costs are about 1.5% of the sales price.

On a $500,000 non-SBA loan, closing costs are about 3.5% of the loan amount.

On a $500,000 SBA loan, closing costs are about 5% of the loan amount.

Pre-Approval Letter

Very easy to get. Usually the same day you talk to a lender.

Many lenders won't issue a pre-approval letter until an agreement of sale is signed. Many lenders require a complete loan file first.

Normally required before an agreement of sale is signed.

Normally not required on commercial properties.

Shopping Lenders

Pretty easy. Can usually get rates and terms with a simple phone call.

More difficult with many lenders unwilling to quote pricing untilyou make a formal application.


Normal amount of paperwork.

Commercial Mtgs require more paperwork.

SBA loans usually have the most paperwork.

Closing Time

45 days is standard and many offer faster closings if needed.

Non-SBA loan - 60 days is normally requested.

SBA loans - 90 days is normally requested.

Pre-Payment Penalties

A pre-payment penalty is a charge for paying off your mortgage off early.

SBA loans have a 3 -year pre-payment penalty. 5% of the loan amount in year 1, 3% in year 2, and 1% in year 3.

For many new mortgages, the lender cannot charge a pre-payment penalty.

Most traditional bank loans will have a 3-year or longer pre-payment penalty.

Balloon Pymt *

Most loans do not have a balloon pymt.

Most commercial mtgs WILL HAVE a balloon pymt.

SBA loans do not have a balloon pymt.

*Balloon pymt - A balloon payment is a large payment due at the end of the loan term