The Ultimate Guide to Mixed Use Financing
Have you ever seen a residential building with a retail shop underneath? These properties are referred to as “mixed-use” properties because they’re used for both residential and commercial purposes. Whether it’s a small apartment with a convenience store or a condo with luxury retail outlets underneath, mixed-use buildings are quite common—especially in cities like New York, where real estate prices are among the highest in the country.
Mixed-use financing refers to mortgage loans used to purchase mixed-use buildings. But what types of mixed-use financing are there, and do the benefits outweigh the drawbacks?
Here’s a look at what factors affect the type of mixed-use financing a borrower is eligible for, and the benefits and drawbacks of mixed-use financing.
What Factors Affect the Type of Mixed-use Financing You’re Eligible For?
Imagine finding a cheap mixed-use building for sale in a neighborhood with a new bus line. You know that the ROI on the mixed-use building will be immense because the new bus line will increase real estate demand in the neighborhood. However, you’re short of the money needed to purchase the building. What do you do?
In this scenario, it’s tempting to apply for mixed-use financing immediately, so you don’t miss out on a potentially lucrative investment opportunity. But before you rush to apply for mixed-use mortgage loans, there are three factors worth considering—how quickly you need the loan, how much you want to borrow, and how long you want to borrow. It’s also worth factoring in the advantages and disadvantages of mixed-use mortgage loans.
1. How Quickly You Require the Loan
Did you know the urgency with which you require mixed-use financing determines what type of mixed-use mortgage loans you qualify for?
If you require mixed-use financing quickly, you must be willing to settle for mortgage loans that aren’t government-insured. On the other hand, if you’re willing to wait longer, it’s worth opting for government-backed mixed-use mortgage loans that are federally insured.
2. The Loan Size
If you think mixed-use buildings are cheap, think again! Mixed-use buildings are worth as much as $3 million in places like New York because they yield a higher ROI than regular buildings. That’s why mixed-use mortgage loans have high limits.
The maximum loan limit on commercial mixed-use financing is higher than government-backed mixed-use financing. However, mortgage lenders also charge higher interest on mixed-use mortgage loans that aren’t backed by federal bodies. Therefore, it’s crucial to think carefully about whether the ROI of the mixed-use building you’re looking to purchase is enough to cover the premiums you’ll pay on mixed-use financing.
3. The Loan Term
The other factor to consider is the term of your mixed-use mortgage loan. Mixed-use mortgage loans that aren’t insured by federal bodies have longer terms compared to those that are federally insured. However, it’s worth considering that the longer your loan term, the higher the premiums you’ll pay.
The Advantages of Mixed-use Financing
1. Convenience
Mixed-use financing gives buyers access to a single loan to purchase mixed-use buildings. This is far more convenient than taking out separate loans for the commercial and residential parts of a mixed-use building.
2. Low Risk
If you buy a mixed-use building, you’ll receive rent from residents and shop owners. In other words, you’ll benefit from diversification as you’ll have two income sources to pay off your mortgage every month.
3. Cost-effective
It’s common for mortgage lenders to charge closing costs and lender fees on mortgage loans. Fortunately, if you’ve applied for mixed-use financing, you’ll pay closing costs and lender fees on a single loan for the mixed-use building you’ve bought. This is better than paying separate closing costs and lender fees if you choose to take out multiple loans for the mixed-use building.
The Disadvantages of Mixed-use Financing
1. High Down Payment
Mixed-use financing typically requires a down payment of 15% to 35% of the price of the property if you opt for a traditional commercial mortgage loan. Since mixed-use buildings typically cost millions of dollars due to their high ROI, you’ll be required to pay a significant down payment to secure a mixed-use mortgage loan. In comparison, regular home loans like FHA loans require a down payment of just 3.5%.
2. Approval Takes Time
Unfortunately, it can take up to 90 days to get approved for mixed-use mortgage loans. This is far longer than other loans like conventional loans that take an average of 45 days to close, according to Ellie Mae.
It takes longer to approve mixed-use financing because the underwriting process is more comprehensive. In simpler words, it takes longer for mortgage lenders to verify the borrower’s financial information and cross-check it against the extensive requirements of mixed-use mortgage loans compared to conventional loans.
3. Mixed-use Financing isn’t Readily Available in Rural Areas
Mixed-use buildings are extremely common in highly developed urban cities like New York City. Therefore, there are numerous mortgage lenders in urban cities competing with one another to gain a share of the mixed-use financing market—making it more likely to find mixed-use financing on favorable terms.
In contrast, it’s difficult to find mortgage lenders that are willing to provide mixed-use financing in rural places. If you do manage to find mortgage lenders that provide mixed-use financing in rural areas, you’ll be required to pay higher interest rates, closing fees, and lending fees.
If you’re ready to talk to a licensed mortgage lender in New York about mixed-use financing, get in touch with our team of experts at Atlantic Home Capital. Our mortgage consultants have several decades of experience and will guide you through the complete process of obtaining Mixed-Use Financing Ft Lauderdale. We also provide a range of other mortgage loans, including FHA Loans In Fort Myers and modular mortgage loans NY for those interested in purchasing prefabricated homes.
Reach out to us today and find out why we’re consistently praised by our clients!
