Commercial 30 Year Fixed – State of the Loan Program

The commercial 30 year fixed loan has taken a beating by the current credit crisis. Rates have moved up and underwriting guidelines continue to tighten. Gone are the days of 6.25% on 30 year fixed rates on special purpose properties. It will probably be a very long time before they return as well. For example, the maximum loan to value on cash out refinance for an investment deal is now at 50% from 75% 6 months ago.In fact, investment loans within this program have taken the worst of it as this side of the business is the least favorite by the funding bank. They are more actively funding and considering owner occupied transactions than investments.Other restrictions include debt coverage ratios being increased to 1.25%, virtually all special purpose properties like hotels, restaurants daycares, etc are simply no longer eligible. Another major restriction is that the town population where the subject property is located now has to be at least 100,000.Why the carnage? The commercial 30 year fixed loan is structure similar to residential loans. I.e. meaning the individual loans are pooled, securitized and sold on the secondary market for commercial mortgages. As the residential subprime mess has spread into our side of the business these types of commercial loan programs have been seriously affected. The buyers of these bonds have been hurt and no longer can justify the risk, and have slowed or stopped buying these investments.If you own the property your business occupies and if its general purpose like industrial, office, retail and you would be willing to pay an additional 1% on your rate than it will still make sense for you to investigate this option.

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