What is a mixed-use loan?
In commercial real estate, mixed use is a term used to describe a property with multiple uses. There are many examples of this, such as a multistory building with retail space on the bottom floor and apartment units above it, or office space that is attached to a single-family home.
Most commonly, a mixed-use development includes more square footage for owner-occupied or rental housing rather than a strict commercial use, although mixed-use loans are considered commercial financing because the property relies heavily on rental income.
What are some common types of mixed-use mortgages?
The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac offer mixed-use loans for many circumstances. The GSEs have strict rules about the types of mixed-use developments they’ll purchase or securitize. The owner must occupy any residential space, and he or she must own and operate any attached businesses, such as a doctor’s office, barbershop or daycare center.
The Federal Housing Administration (FHA) finances mixed-use property acquisitions with up to four residential units. The FHA requires at least 51% of the property’s square footage to be set aside for residential use. Some types of uses — such as hotels, bed-and-breakfast establishments, transient housing, or fraternity and sorority homes — are prohibited.
The U.S. Small Business Administration (SBA) also offers mixed-use mortgages through participating lenders for business owners who intend to occupy the property, meaning that these loans are not for real estate investors. In these cases, the business must occupy more than half of the square footage. Unlike other mixed-use lenders, the SBA offers low downpayments of 10% — and for established businesses, 100% financing is possible.
A wide range of private lenders will finance mixed-use acquisition, construction or renovation projects for scenarios that fall outside the guidelines of government agencies. For borrowers with strong documentation and credit, an appraisal and an exit strategy, a lender may offer higher loan-to-value ratios, lower interest rates and/or longer terms. Borrowers with credit blemishes or those looking to speed up the funding process can seek out mixed-use loans from hard money lenders in exchange for higher downpayments, higher interest rates and/or shorter terms.
Who offers mixed-use loans?
Many banks, nonbanks and private lenders offer mortgages for mixed-use properties. Mixed-use financing options, including for construction loans and properties with multifamily elements, can be found at LenderSearch.com.