Commercial Loans vs Home Mortgages
Anyone who has bought a house in Rochester Hills or Sterling Heights knows the residential mortgage playbook: 30 year fixed rate, 20 percent down, tax returns and W 2s, closing in about 45 days. Commercial loans work on a completely different set of rules, and the first time buyer who expects the same process often gets blindsided.
Loan terms are shorter. Most commercial loans amortize over 20 or 25 years but balloon in 5, 7, or 10. That means monthly payments look like a long term loan, but the full remaining balance comes due at the balloon date. The owner has to refinance or sell before that date, which adds a layer of planning residential buyers never deal with. SBA 504 loans, popular for owner users buying buildings in Macomb County, are one of the few exceptions and can run fully amortizing for 25 years.
Down payments are higher. Commercial deals usually need 20 to 30 percent down for investment property and 10 to 15 percent for owner occupied through SBA programs. Rates are also higher than residential, often one to two points above. Underwriting looks less at personal income and more at the property’s debt service coverage ratio, or DSCR. Lenders want to see NOI cover the new debt payment by 1.20 to 1.25 times. If the building’s income does not support the loan, personal income will not close the gap.
Local banks matter more in commercial lending than in residential. Community banks across Macomb and Oakland County, including credit unions with a strong local footprint, know the neighborhoods and the buildings. They often move faster and approve deals national lenders pass on, especially for older industrial in Warren or mixed use on Main Street in Rochester. Building a relationship with two or three local lenders is one of the most valuable things a commercial investor can do.
Michigan adds two specific wrinkles. Property taxes uncap at sale, which changes the DSCR math a buyer saw when looking at the seller’s tax bill. And the state’s attorney close process adds legal fees on both sides. TDG Commercial builds these costs into the deal analysis before a buyer gets to underwriting, so the numbers that worked on a back of the envelope still work at closing.
TDG Commercial, recognized as top commercial realtors in Rochester MI, works with a network of local lenders who know Macomb County submarkets well. That relationship can mean faster approvals and terms structured for this specific market. Anyone making the jump from residential to commercial benefits from understanding these differences before the offer goes out, not after.
Another key difference is the documentation package. Commercial lenders want rent rolls, operating statements for the past two or three years, a schedule of real estate owned by the buyer, and often a personal financial statement with a global cash flow analysis. They also want environmental reports for industrial property, which in Macomb County is almost every industrial deal because of the long manufacturing history. Phase I reports cost $2,500 to $4,000 and take two to three weeks, which needs to be factored into the closing timeline.
Rate structure varies too. Commercial loans can be fixed, adjustable, or hybrid. A 5 year fixed with a 20 year amortization is common for investment property. A 25 year fully amortizing SBA 504 is popular for owner users. Interest only periods, common on construction and bridge loans, create lower payments early but require refinancing into permanent debt before the interest only period ends. Knowing which structure fits the business plan matters more than chasing the lowest headline rate, and that is where a broker who sees dozens of term sheets a year can help a buyer choose the right lender and the right product.
