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In case the investment is in commercial real estate like office buildings, malls and hotels, it would be necessary to apply for commercial real estate loans. While applying for a commercial real estate loan, the loan amount is decided depending upon the income that the commercial property is likely to generate, and the capacity of the borrower to repay the loan. Past income history of the property is also taken into consideration before the loan amount is approved.
But today, Banks and other lending institutions have tightened up their lending standards, as they are unable to withstand the risks of huge mortgages. Even if the borrowers make huge down payments and have good credit histories, unless they are able to show regular income, mortgage loans are had to come by. And banks that do approve such huge loans charge relatively higher rates of interest to compensate for the lack of demand by borrowers.
Banks are forced to review their loan system mainly due to an increase in defaults by borrowers. This results in a dampener for real estate financing and prices.
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