To qualify for a commercial mortgage, most lenders want a loan-to-value ratio of 65% to 80%, property or business cash flow covering the payment at least 1.20 to 1.25 times, a credit score of roughly 600 to 680 or higher, and a down payment of 20% to 35%. Owner-occupied properties usually qualify on easier terms than investment properties.
Unlike a home loan, a commercial mortgage is underwritten mostly on the property and the income behind it. Your personal credit still matters, but it is the third question a lender asks, not the first.
Which numbers does a commercial lender check first?
Three ratios set the maximum loan. The lender calculates each one and lends the smallest amount that passes all three.
| Ratio | Formula | Typical requirement in 2026 |
|---|---|---|
| Loan-to-value (LTV) | Loan ÷ appraised value | 65% to 80% maximum. 75% is common for stabilized property |
| Debt service coverage (DSCR) | Net operating income ÷ annual debt payments | 1.20x to 1.25x minimum. Many lenders prefer 1.25x to 1.35x |
| Debt yield | Net operating income ÷ loan amount | Often 8% to 10% minimum on investment property |
These are market ranges, not regulations. Each lender sets its own limits by property type, and they tighten for riskier properties like hotels or single-tenant buildings.
How does the lender size the loan?
Here is a hypothetical. Say an investor wants to buy a $2,000,000 neighborhood retail center with net operating income (NOI) of $165,000 a year.
LTV test at 75%: $2,000,000 × 75% = $1,500,000 maximum loan.
DSCR test at 1.25x: assume a 7% rate on a 25-year amortization.
- Payment on $1,500,000: about $10,602 a month, or $127,220 a year
- DSCR: $165,000 ÷ $127,220 = 1.30x. It passes
- NOI needed to support $1,500,000 at 1.25x: $127,220 × 1.25 = $159,025
Debt yield: $165,000 ÷ $1,500,000 = 11%. It passes.
All three tests clear, so the loan is $1,500,000 and the investor brings $500,000 plus closing costs.
Now change one number. If NOI were $140,000 instead, the most the property could pay toward debt at 1.25x is $140,000 ÷ 1.25 = $112,000 a year. At 7% over 25 years, that supports a loan of about $1,320,000, or 66% of the price. The investor would need to bring about $680,000 instead of $500,000. That's the most common surprise in commercial lending: the income, not the appraisal, ends up capping the loan.
How is owner-occupied property underwritten differently from investment property?
Lenders treat these as two different loans.
| Owner-occupied | Investment property | |
|---|---|---|
| Who occupies it | Your business uses at least 51% of the space (the SBA standard; conventional lenders set their own) | Third-party tenants |
| Income used for DSCR | Your business's cash flow | The property's rent, less vacancy and expenses |
| Typical down payment | 10% (SBA) to 25% (conventional) | 25% to 35% |
| Documents | Business and personal tax returns, business financials | Rent roll, leases, operating statements, plus your returns |
| SBA eligible | Yes, through 7(a) or 504 | No. SBA doesn't finance passive rental real estate |
| Main risk the lender weighs | The health of your business | Tenant quality, lease terms, vacancy |
How is an owner-occupied loan qualified?
Here is another hypothetical. Say a machine shop pays $96,000 a year in rent and wants to buy a $1,500,000 building instead.
- Down payment at 20%: $300,000
- Loan: $1,200,000 at an assumed 7% over 25 years = about $8,481 a month, or $101,776 a year
- Business cash flow (EBITDA) with the $96,000 rent added back: $300,000
- Existing equipment debt: $60,000 a year
- DSCR: $300,000 ÷ ($101,776 + $60,000) = 1.85x
Because the shop's rent goes away when it buys the building, many lenders look at cash flow before rent. The mortgage replaces the rent payment rather than adding to it, which is why owner-occupied deals often qualify more easily than investment deals of the same size.
If the down payment is the obstacle, an SBA 504 loan can bring it down to 10% for an owner-occupied building. Our comparison of SBA 7(a) and 504 loans covers how that works.
What credit score and experience do lenders want?
| Factor | What most lenders look for |
|---|---|
| Personal credit score | 600 to 680 minimum, depending on the lender and loan type. Higher scores get better pricing |
| Time in business (owner-occupied) | Two years is the usual preference |
| Real estate experience (investment) | A track record owning or managing similar property. First-time investors may face lower LTV limits |
| Liquidity after closing | Cash reserves, often 6 to 12 months of payments |
| Net worth | Often at least equal to the loan amount for investment property |
| Personal guaranty | Usually required on small-balance loans. Some larger investment loans are non-recourse |
For the commercial mortgage programs Sagamore works with, the stated minimums are a 600 credit score, two years in business preferred, and 10% to 25% down. Those are floors, not approvals. A lender weighs them against the property and the cash flow.
What documents do I need for a commercial mortgage?
Build the file before you make an offer. A typical request:
- Two to three years of business and personal federal tax returns
- Year-to-date profit and loss statement and balance sheet
- Personal financial statement and a schedule of real estate you already own
- Purchase contract and property details
- For investment property: current rent roll, copies of leases, and two to three years of property operating statements
- Business entity documents and a debt schedule
The lender will order an appraisal, usually an environmental report (a Phase I on most commercial property), a title search, and a property condition report on older buildings. The borrower usually pays for these, and they can run several thousand dollars before closing.
What loan terms should I expect?
Commercial mortgages are structured differently from 30-year home loans.
| Term | Typical range |
|---|---|
| Amortization | 20 to 25 years (up to 30 for some multifamily) |
| Loan term | 5, 7, or 10 years, often with a balloon payment at maturity |
| Rate | Fixed for the term, or variable tied to prime, SOFR, or Treasuries |
| Rates in 2026 | Roughly 6.5% to 8.5% for strong conventional deals. Higher for riskier property or thinner files |
| Prepayment | Step-down penalties or yield maintenance are common |
A 25-year amortization with a 10-year term means the payment is calculated as if you'll pay over 25 years, but the remaining balance comes due in year 10. On the $1,500,000 retail example, about $1,180,000 would still be owed at that point. You would refinance or sell before the balloon. Plan for that on day one.
The consumer mortgage protections that apply to home loans generally don't apply here. Business-purpose credit is exempt from Regulation Z's ability-to-repay rule, so the lender's own underwriting and your loan documents set the terms. Read them closely, or have an attorney do it.
What if the property or timing doesn't fit a permanent loan yet?
Some properties can't qualify for a permanent loan on day one because vacancy is too high, the building needs work, or the seller wants to close in three weeks. A bridge loan can fund the purchase for 3 to 18 months while you lease up or renovate, then a permanent commercial mortgage pays it off. Bridge financing costs more, so it works best with a clear exit.
Owner-occupants should also price an SBA loan. The lower down payment and 25-year term can outweigh the extra paperwork.
Sagamore is a commercial loan broker, not a lender. We size your deal against LTV, DSCR, and lender guidelines, then match it with lenders suited to the property type. Rates, terms, and approval are set by the lender. If you have a property in mind, start an application with the address and the numbers you have.
