Commercial Loans
Financing That Understands Commercial Real Estate
Commercial real estate is fundamentally different from residential real estate. You’re not buying a home to live in. You’re buying an income-producing asset. You’re analyzing cash flow, cap rates, and investment returns. You’re evaluating tenant quality, lease stability, and market dynamics. Traditional residential lenders don’t understand this. They apply residential lending rules to commercial properties, creating unnecessary complications.
That’s where commercial lending comes in.
Commercial loans are designed for office buildings, retail spaces, warehouses, apartment complexes, mixed-use properties, and other income-producing real estate. Financing is based on the property’s income potential, not just your personal income. Terms are flexible. Amortization can extend to 25- 30 years. Rate locks are longer. Lenders understand commercial real estate as an investment.
At Dream House Mortgage, we specialize in commercial financing for property owners, investors, and developers. We understand commercial real estate, the cap rates, cash flow analysis, and the fundamental truth that commercial properties are businesses, not homes.
Commercial loans aren’t complicated. They’re designed specifically for how commercial real estate financing actually works.
Income-Based Financing for Commercial Properties
A commercial loan is a mortgage for commercial real estate properties generating income through tenant payments. The lender evaluates the property’s income (rental revenue), operating expenses, and your financial profile to determine approval and terms.
Here’s how it works: You identify a commercial property. You provide property information: location, property type, current tenants, lease terms, and financial statements. The lender orders a commercial appraisal. The lender analyzes the property’s income potential and your financial strength. If the numbers work, if the property generates sufficient income to cover the loan payment and operating expenses, you’re approved.
The lender evaluates the property’s debt service coverage ratio (DSCR). This is the property’s net operating income divided by the loan payment. If the property generates enough income to cover the mortgage and expenses, you qualify.
This is fundamentally different from residential lending. Residential lenders care about your personal income. Commercial lenders care about the property’s income. You’re financing an asset that pays for itself through tenant income.
The result? Financing that recognizes commercial real estate as an investment, with terms and flexibility that support your business strategy.
The Real Advantages of Commercial Financing
Everything You Need to Know About Commercial Financing
Loan Amount Range
Loan-to-Value (LTV)
- Conservative: 70% LTV (based on property value)
- Standard: 75% LTV
- Aggressive: 80% LTV (requires high income and credit)
LTV is the loan amount divided by the property's appraised value.
Debt-Service Coverage Ratio (DSCR)
- Standard requirement: 1.20-1.25 DSCR minimum
- Strong property: 1.25+ DSCR
- Flexible: 1.10-1.15 DSCR with compensating factors
DSCR = Net Operating Income ÷ Loan Payment
Example: Property generating $100,000 annual NOI with $80,000 annual loan payment = 1.25 DSCR
Credit Score Requirements
- Best rates and terms: 740+
- Good rates: 720-739
- Acceptable: 700-719
- With compensating factors: 680-699
- Minimum: Sometimes 660 (depends on property income and LTV)
Your credit score matters, but the property's cash flow matters more. Strong cash flow can compensate for lower credit.
Down Payment / Equity Required
- Minimum: 20-25% of purchase price
- Standard: 25-30%
- Optimal: 30%+ (better rates and terms)
Your down payment demonstrates commitment and an equity cushion for the lender.
Liquid Reserves
Interest Rates
- Typical range: 5-8% for strong properties and borrowers
- Influenced by: DSCR, credit score, property type, loan amount, market conditions, amortization period
Commercial rates are competitive with or better than residential jumbo rates for well-qualified properties.
Loan Terms & Amortization
- Interest-only period: 1-5 years (optional)
- Full amortization: 15-30 years (standard 25-30 years)
- Loan term: 5-10 years (with refinancing at the end)
- Balloon payment: Often at term end (refinance or sell)
Property Types
- Office buildings
- Retail spaces and shopping centers
- Warehouses and industrial properties
- Apartment complexes (5+ units)
- Mixed-use properties
- Self-storage facilities
- Hotels and hospitality
- Medical offices
- Multi-tenant properties
Tenant Requirements
- Established tenants with leases
- Quality tenants (strong credit, established businesses)
- Lease terms: Longer leases = better rates
- Tenant diversity: Multiple tenants = lower risk
Property Condition
Commercial properties must be in an acceptable condition. No major structural issues, roof problems, or environmental concerns. Properties under renovation can be financed based on after-repair value (ARV).
Financial Documentation Required
- Last 2-3 years of property tax returns (Schedule E)
- Current year P&L (profit and loss statement)
- Rent roll (list of tenants, lease amounts, lease terms)
- Lease agreements (current)
- Property appraisal (completed by a commercial appraiser)
- Personal financial statements (owner)
- Business tax returns (if owner-occupied business use)
Strategic Process Designed for Your Success
We review the property, its income history, tenants, and leases. We evaluate your commercial real estate experience and portfolio. We discuss your investment strategy and goals.
We analyze the property’s financial statements, calculate DSCR, and project cash flow. We review your personal financial profile. We provide honest feedback on loan potential.
We order a commercial appraisal from a qualified appraiser. The appraisal establishes property value and validates income assumptions. Appraisal typically takes 7-10 days.
We structure the loan with the loan amount, interest rate, amortization, term, and any special features. We provide pre-approval outlining terms. You’ll know your exact financing before commitment.
We conduct thorough underwriting. We verify tenant information, lease terms, and income history. We ensure all documentation is complete and accurate.
We handle all closing details. Title work. Environmental assessments (if needed). Closing coordination with your attorney. You sign documents. You own the property.
After closing, we’re here for refinancing, property sales, portfolio expansion, or construction financing for improvements. Your commercial real estate partner for the long term.
Why Commercial Property Owners Choose Commercial Financing
Benefit 1: Income-Based Qualification
Benefit 2: Longer Amortization Periods
Benefit 3: Flexible Terms & Structures
Benefit 4: Lower Rates for Strong Properties
Benefit 5: Refinancing & Equity Access
How Commercial Loans Stack Up
Feature | Commercial | DSCR | Jumbo | Conventional |
Qualification Basis | Property income | Property cash flow | Personal income + property value | Personal income |
Property Type | Office, retail, warehouses, etc. | Investment residential | Single-family or luxury | Single-family |
Loan Amount | $250K-$10M+ | $100K-$5M+ | $750K+ | Up to ~$766K |
Amortization | 25-30 years | 30 years | 15-30 years | 15-30 years |
DSCR Requirement | 1.20-1.25 | 1.0+ | N/A | N/A |
Down Payment | 20-30% | 20-30% | 10-20% | 3-20% |
Interest Rates | 5-8% | 6-8% | 5-8% | 4-7% |
Best For | Income properties | Investment residential | Luxury homes | Primary residences |
