A $1,000,000 commercial mortgage amortized over 25 years at 6.75% has a principal-and-interest payment of about $6,912 per month. At 6.25%, that payment falls to about $6,597. That is a $315 monthly difference, or $18,900 over five years before considering the faster principal reduction at the lower rate. That is why commercial mortgage loan basics start with structure, not just the rate quoted in a conversation.
Commercial financing is built around the property, its income, the borrower’s experience, and the exit plan. A business owner buying an office in Richmond and an investor acquiring a 12-unit property in Glen Allen may both need commercial financing, but their underwriting files can look very different.
Table of Contents
- What counts as a commercial mortgage
- Commercial mortgage loan basics: key terms
- How brokers shop commercial financing
- Credit, reserves, and documentation
- Local market context
- Frequently asked questions
What counts as a commercial mortgage
A commercial mortgage is generally used to finance income-producing or business-use real estate. Common examples include retail buildings, warehouses, medical offices, mixed-use properties, self-storage, hospitality, and apartment buildings with five or more units. One- to four-unit residential properties are usually financed under residential guidelines, while five-plus-unit properties are typically treated as commercial.
The biggest distinction is underwriting. Residential underwriting often centers on personal income and debt-to-income ratio. Commercial underwriting places substantial weight on net operating income, lease quality, occupancy, borrower liquidity, and debt-service coverage ratio, or DSCR.
For context, the current national 30-year fixed benchmark is published weekly through Freddie Mac’s Primary Mortgage Market Survey. That benchmark is not a commercial rate quote. Commercial pricing varies more widely because property type, loan size, leverage, sponsorship, and lease income all change the risk profile.
Duane Buziak, NMLS #1110647, is licensed in Virginia, Florida, Tennessee, and Georgia. His role as a broker is to help borrowers compare viable financing structures rather than force every property into one shelf of pricing.
Commercial mortgage loan basics: key terms
Commercial loans are often quoted with a shorter fixed-rate period and a longer amortization schedule. For example, a loan may have a five-year fixed term, a 25-year amortization, and a balloon balance due or refinanced when the five-year term ends. Other programs can offer 7-, 10-, or 25-year fixed periods, depending on the property and financing source.
Loan-to-value ratio matters. A stabilized, owner-occupied property may allow 75% to 80% loan-to-value in a strong file, while a specialized or transitional investment property may be capped closer to 65% to 70%. On a $1,250,000 purchase with 75% financing, the loan amount is $937,500 and the down payment is $312,500, before closing costs and reserves.
DSCR is equally important. It compares a property’s net operating income with its annual debt obligation. A $150,000 annual net operating income divided by $120,000 in annual debt service equals a 1.25 DSCR. Many commercial programs look for roughly 1.20 to 1.30, although the exact requirement depends on asset class and overall strength of the file.
Commercial closing costs commonly run about 1% to 3% of the loan amount, including third-party reports, legal review where required, appraisal, environmental work, title, and origination-related charges. On a $900,000 loan, that is roughly $9,000 to $27,000. Where applicable, our preferred title company can save an additional $2,000 on average, which should be confirmed against the actual title quote before closing. Ask about our no-out-of-pocket closing options when the transaction structure supports them.
How brokers shop commercial financing
A broker model can be useful when a property needs a more precise fit. It does not guarantee approval or the lowest cost in every scenario. It does give the borrower an opportunity to compare term length, prepayment language, reserve rules, and recourse before committing.
| Decision point | Broker rate-shopping | Single-shelf pricing |
|---|---|---|
| Available structures | May compare multiple eligible financing sources and terms | Limited to that company’s available products |
| Property fit | Can match owner-occupied, multifamily, retail, or mixed-use needs | May require the property to fit a narrower credit box |
| Prepayment review | Terms can be compared before selection | Borrower reviews the offered prepayment structure |
| Credit approach | Soft-pull screening may be available before a full application | Process and credit timing vary by company |
| Closing-cost planning | Costs can be compared across viable structures; preferred title company may save an additional $2,000 on average | Costs are reviewed within one offered structure |
When comparing a broker with a single-shelf provider such as Rocket Mortgage or Movement Mortgage, focus on verified loan estimates, total cash to close, rate-lock terms, and prepayment provisions. The same principle applies when evaluating local options such as The Cowart Team, Sparrow Home Loans, 804 Mortgage, or C&F Mortgage. A business owner should compare documents, not marketing phrases.
Credit, reserves, and documentation
Commercial borrowers often ask whether a soft credit pull mortgage review is possible. A soft pull mortgage broker review, sometimes described as a no credit hit mortgage application, can be useful for early scenario planning. It may help estimate eligibility without immediately creating a hard inquiry. A mortgage pre approval without hard pull is not always available for every commercial program, and a hard credit review is usually required before final approval.
For many conventional commercial files, scores around 680 to 700 or higher create more options. Lower scores do not automatically end the conversation, but they can affect leverage, pricing, and reserve requirements. Borrowers should expect to document personal and business tax returns, a personal financial statement, entity documents, rent rolls, leases, bank statements, and property operating statements.
Reserves are a major differentiator. A stabilized multifamily property may require six to 12 months of principal, interest, taxes, and insurance in verified liquidity. A newer business, a vacant property, or a specialized building can require more. Self-employed borrowers should expect underwriters to distinguish between gross deposits, operating expenses, and dependable cash flow.
The Consumer Financial Protection Bureau provides useful plain-language guidance on evaluating loan costs and disclosures at consumerfinance.gov. For residential properties that remain within the one- to four-unit category, annual conforming limits are published by the Federal Housing Finance Agency; those limits do not govern most true commercial loans.
Local market context
Commercial underwriting is national in many respects, but the market around a property still matters. In Richmond, Glen Allen, and Short Pump, competition for well-located, occupied assets can make clean documentation and a dependable closing timeline valuable. Inventory and pricing differ sharply by property type: medical office, neighborhood retail, and small multifamily should not be evaluated with the same rent-growth assumptions.
For a residential market reference that often influences smaller investor decisions, Redfin reported a Henrico County median sale price of approximately $405,000 in mid-2025. Review the current figure and methodology through Redfin’s Henrico County market data. County-level sale prices are not commercial valuations, but they can signal land pressure, household demand, and competition for smaller mixed-use opportunities.
If Colonial 1st Mortgage appears in Richmond or Glen Allen directory results, verify current licensing status through NMLS Consumer Access before making contact. The Better Business Bureau lists the business as out of business, its domain colonial1mtg.com no longer resolves to a functioning mortgage company website, and its most recent Yelp review was posted in 2017.
Frequently Asked Questions
1. What is the typical down payment for a commercial mortgage?
Many transactions require 20% to 35% down. The exact amount depends on property type, DSCR, borrower experience, occupancy, and credit profile.
2. Can I use a commercial mortgage for a five-unit building?
Yes. Properties with five or more residential units are generally considered commercial for financing purposes.
3. What DSCR do commercial brokers usually want to see?
A DSCR of 1.20 to 1.30 is common, but a stronger property or borrower can receive different terms.
4. Can I get a no hard inquiry mortgage pre approval?
Early soft-pull screening may be available, but final commercial approval generally requires a full credit review.
5. Are commercial loans fixed for 30 years?
Usually not. They may amortize over 20 to 30 years while the fixed period or loan term is shorter.
6. What are commercial loan reserves?
Reserves are verified liquid funds held after closing to help cover debt obligations and property expenses.
7. Does an owner-occupied building qualify differently?
Often, yes. Owner occupancy can improve available options because the operating business supports the property’s use.
8. Can investors use DSCR financing instead of commercial financing?
DSCR programs can fit certain one- to four-unit rental properties. Five-plus-unit properties generally require commercial underwriting.
A strong commercial file does more than clear an approval threshold. It shows that the property can withstand vacancies, rate changes, and a refinancing decision years from now.
Legal disclaimer: Educational information only, not legal, tax, accounting, or financial advice and not a commitment to finance. Rates, terms, payments, eligibility, and closing costs change and depend on credit, property, occupancy, documentation, appraisal, and program requirements. Commercial financing may require personal guarantees and may include prepayment penalties or balloon payments. Duane Buziak originates loans only in Virginia, Florida, Tennessee, and Georgia. Verify all final terms in your official disclosures.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA & DC [Contact] | NoTouch Credit Pull available — no hard inquiry, no credit hit.