Difficulties with Mixed-Use Property Lending and Mixed-Use Mortgage Loans
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Published: Thursday, March 13, 2008
Mixed use properties are properties that are used for residence and business purposes and are usually zoned in commercial areas. Although obtaining financing for these types of properties is not as easy as a standard single family residence there are lenders that will. However, there are many things to consider when purchasing or refinancing a mixed-use property.
Many banks do not lend on "Mixed-Use" homes because Fannie Mae (FNMA) and Freddie Mac (FHLMC) do not purchase mortgages secured by Mixed Use properties, which makes finding a Mixed-Use mortgage Lender a challenge. Traditional lender banks must find other investors or keep these loans in their investment portfolios for the duration of the loan term. As a result, loans secured by Mixed Use buildings are deemed to have less liquidity. For this very reason, Mixed-Use property loans have higher interest rates than Conforming mortgages.
In addition to your credit scores and income, Mixed-Use mortgage loans will also factor in the DSCR or Debt Service Coverage Ratio as part of the qualification requirements. This is simply how much income the property is generating vs. the amount of your mortgage payments and business expenses.
One determining factor for lending on Mixed Use is if the nature and primary purpose of the property is for residential use. The commercial use should not exceed 20% of the total living area, this includes agricultural use.
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