mixed use residential mortgage
“Mixed Use Property Loans Can Come From Both Residential And Commercial Lending Programs”
These properties need to be zoned to allow for both residential and commercial utilization.
The split of the property use component will dictate what type of lender or lenders will be interested in seriously considering an application for mixed use mortgage financing.
For instance, for a residential lender to consider a mixed use mortgage, the property utilization must be at least 50% residential. Some home based lenders will only consider residential usage to a minimum of 80%. Each lender and program will be different requiring some market intelligence as to where any one particular deal may fit.
Everything that cannot be covered off on the residential financing side will automatically defer to commercial mortgage solutions.
Mixed Used Financing Challenges
Because of the potential usage combinations of a property with two types of occupancy and use, it can be difficult at times to find a financing solution that is available, or one that meets the borrower’s requirements.
For instance, main line bank and institutional lenders will not typically consider a mixed use property loan application under $250,000.
And when you get into areas of lower population, there can be a considerable drop off in lender interest for any type of mixed use property financing opportunity.
The cost of financing itself can be another challenge.
With straight residential providing the lowest possible cost of mortgage financing available, and straight commercial being the second best, mixed use mortgages tend to have higher risk premiums attached to them and the more unique the property setup the higher the related lender risk due to lower potential remarketing factors.
Limited availability of bank or institutional lending solutions at times can also drive the supply side of the market more towards private lending.
And because mortgage insurance is not available for multi use properties, loan to value ratios tend to average out at less than 60%, with the potential financing leverage ranging from 50% to 75%. So depending on the property, the owner equity requirement can be substantial as compared to other types of property investment.
Comparing Mixed Use Property Lenders
Regardless of the property type or borrower profile, the primary lending objective in most cases is to secure the most debt based capital for the lowest cost. With mixed usage, meeting this objective can be difficult to figure out at times due to some of the financing trade offs you may need to consider.
As an example, there are times when bank, sub prime, and private mortgage options can become similar in terms of the amount of financing provided and the total effective cost of the getting financing in place and servicing debt.
Let me explain.
Banks and institutional lenders can require considerable due diligence and third party verifications to be completed before extending financing. The things they require such as appraisals, environmental assessments, updated financials, and third party studies can be similar in volume and cost for both small and large deals.
At the smaller end of the lending spectrum all the lending application related costs can become substantial.
In comparison, sub prime institutional and private lenders can have significantly lower application related costs as they may be prepared to consider existing appraisals, environmentals, and financials as an example.
So even though secondary mixed use property loan sources may come with a higher interest cost, when all costs are considered, the total cost of financing can be comparable.
With mixed use mortgage financing, this type of more detailed total cost and loan to value comparison can be important to making the best borrowing decision.
Because of all the potential variety in scenarios with mixed use properties from one geography to the next, and one type of property to the next, the process of securing commercial mortgage financing or residential mortgage financing can be difficult to figure out at times and can be helped considerably by utilizing the skills of a property financing specialist.
If you are looking to secure mortgage financing for a mixed use property, I recommend that you give me a call so we can go over your requirements together and discuss the most relevant options available to you in the market and how they stack up against one another.