If you want to invest in commercial real estate, but are looking for low interest rates and a reasonable down payment, it is worth taking a look at FHA loans. The FHA was founded in 1937 as part of President Franklin Delano Roosevelt’s New Deal, and was designed to provide government-backed loans to people who would otherwise not be able to afford to take out conventional loans with heavy down payments and high interest rates. If you qualify for an FHA loan, you are likely to find that it is more affordable than other types of financing and offers distinct advantages.
Small business owners represent potential for economic growth. This is one reason why the government is interested in giving a hand to entrepreneurs making their first step towards developing businesses. This may be particularly true in areas in desperate need of economic stimulation, but which provide a realistic growth potential. The government gives a certain amount of FHA loans for commercial real estate every year as a way to stimulate business and growth. One advantage of these loans is the extremely low down payment of as little as 3.5%. This gives business owners the opportunity to free up working capital that would otherwise be used in purchasing commercial real estate.
One reason the down payments are so low and the interest rates are so reasonable is that the government backs up the lenders in case there is default. An FHA loan is a valuable resource to people who may have a spotty credit history and may be passed over for bank loans and private financing options. For FHA loans, you will need to provide a substantial amount of paperwork and a business plan projecting future income. There is a maximum amount you can borrow, which is around $600,000 to $700,000 depending on the location and other factors.
One thing to keep in mind when applying for an FHA loan is that you have to pay mortgage insurance up front and annually. Many borrowers feel this is a small price to pay compared to the benefits provided by an FHA loan. An advantage these loans have over other types of financing is the lack of penalty for prepayment. With conventional loans, borrowers often have to pay a substantial fee if they want to pay off their loans sooner, and this can discourage refinancing, which can free up working capital. An FHA loans has no penalties for prepayment, and can make refinancing easier.