commercial property terms

pan_kul · Joined: 13 Mar 2007 Posts: 12 7.08 Dollars($)

I want to know what are the necessary terms for loans for purchase of commercial properties. Also what other costs are imposed on that.
thanks

Guest 0.10 Dollars($)

Are you talking about commercial mortgage?

helping_user · Posted: Wed Mar 14, 2007 3:13 am Post subject: RE: commercial property loans

Hi Pankul,

If you are looking towards getting a mortgage against commercial property, the following terms may help you.

Debt service coverage ratio:
It helps to find out if a business is able to cover the mortgage payments and other expenses associated with the property. Most loan programs require the borrower to have a ratio of 1.2-1.35 or 20%-30% more income compared to expenses on property. The ratio can vary on the basis of the loan size, interest rate and amortization.

Loan to value ratio:
It denotes the percentage of the property value that you will be offered as loan. In most cases, the maximum loan amount ranges from 60% to 75% of the property value.

Net operating value:
This is calculated by subtracting your expenses from the income. It determines the profitability of the property. Depreciation of the property value and mortgage loan payments are not included in the calculation.

Cash required for Debt service:
It determines the maximum payment allowable for the property based on the net operating value and debt service coverage ratio.

Thanks.

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