Can a Business Get a Residential Mortgage?

Running a business requires you to think strategically. And there’s nothing quite like real estate marketing working in your favour. 

You can get a residential mortgage for your business, but you must use the property for commercial purposes. 

Residential and commercial mortgages are fundamentally different. Our experienced brokers provide personalized advice that aligns with your goals to help your business thrive! 

What Is a Business Mortgage? 

Buyers traditionally use a business or commercial mortgage to fund the purchase of commercial properties like office buildings, retail spaces, or industrial units, all of which generate an income. 

Some businesses use their borrowing power to invest in residential properties as an asset. Different rules apply depending on how you use the property, such as whether it’s intended for commercial rental or employee housing. 

Not everyone is eligible for a commercial mortgage. Lenders usually give them to buying groups, such as corporations or development firms (that must guarantee the loan), not individual people. 

Why Get a Residential Mortgage for Businesses?

The answer is simple: it can save your business money, though it’s not always a straightforward process.

A residential mortgage is generally for people buying property to live in, such as a house or condo, geared toward personal use. Meanwhile, a commercial mortgage is ideal for properties intended for business activities. 

It’s not just the intended use setting these 2 mortgages apart; it’s also about the terms and structure. 

Residential mortgages often come with lower interest rates, smaller down payment requirements, and more flexible terms than commercial mortgages. They’re also simpler to qualify for, as lenders primarily assess personal income and credit rather than complex business financials.

These favourable terms attract business owners, especially when a property serves a dual purpose, such as housing, a home office, or a long-term investment plan. Lower costs and easier accessibility allow entrepreneurs to manage their finances more efficiently. 

However, staying compliant with lender policies is essential to avoid complications.

When Might a Business Pursue Residential Mortgages?

Because businesses are diverse in the goods and services they provide, their financial needs and the best ways to manage or invest their money can differ significantly. 

In certain situations, pursuing a residential mortgage may be a strategic decision that provides unique advantages.

Rental Property Investments

Many businesses establish secondary income streams by purchasing residential rental properties. 

These properties must meet investment-specific mortgage terms, often differing from individual residential mortgages.

Employee Housing

Companies operating in remote or urban areas may purchase residential properties to house employees, particularly for temporary assignments. Special agreements are sometimes required for such use cases.

Multi-Purpose Properties

Businesses that combine residential and commercial use in one property, such as a storefront with an apartment above, also explore mortgage options that straddle residential and commercial financing.

Suppose your retail business doesn’t need a lot of room to operate or can be worked into a residential space. In that case, you can qualify for a residential mortgage. 

Challenges to Keep in Mind

Here’s the catch: you must only use the property for business purposes. Simply put, you can’t live there, so having a primary residence is essential. All activities on the property must be for generating income. 

For instance, you can use the kitchen to prepare food for yourself or your employees, but you can’t do so full-time. 

Your company will still need to consider factors such as interest rates, repayment terms, and any legal restrictions tied to residential properties.

Financial institutions typically examine the property’s intended use and may apply stricter scrutiny if it deviates from standard residential use. Some municipalities might have bylaws prohibiting using residential property for business, so researching local regulations is necessary. 

These rules might be strict, but they are there to protect you. It covers you if your business suffers from a downturn and you need to refinance or make tough decisions. 

So, although it’s possible, there are unique challenges businesses should consider.

Higher Down Payment Requirements

A business applying for a mortgage may face stricter rules, including a higher down payment (usually starting from 20% or more).

More Stringent Credit Checks 

Lenders will closely examine the business’s credit history, financial performance, and overall market stability. Businesses not in solid financial health may struggle to secure approval.

Different Interest Rates

Interest rates for businesses seeking to purchase residential properties can vary from standard residential mortgages. The interest could be slightly higher based on perceived risk.

Personal Guarantees

Lenders frequently demand personal guarantees from business owners or key stakeholders for added security, thus risking personal assets if the loan defaults.

How to Approach the Mortgage Process as a Business

When you’re considering pursuing a residential mortgage on behalf of your business, a strategic approach will save time and make the process smoother. Here’s a quick guide on how to start.

Assess Your Business Needs & Goals

Before applying, define the specific reason for purchasing the residential property. Whether it’s investment income or staff accommodation, knowing your “why” will help you convey intent clearly to lenders.

Get Your Financials in Order

Lenders will scrutinize your business’s financial stability. 

Verify that all tax filings, income statements, and credit reports are in top shape and readily available.

Partner with the Right Lender

Not all lenders will finance business-owned residential properties. Research options or lean on mortgage specialists to connect you with the right lenders.

Explore Specialized Advice

Mortgage brokers bring a wealth of knowledge to the table. Our experienced advisors can guide you in understanding the range of mortgage products available and tailor options to your business needs.

Structure Your Loan Wisely

Businesses sometimes finance properties through their corporate entity for tax advantages or legal protection. However, this can involve additional considerations, such as exposure to higher interest rates or lender restrictions.

Trust Our Experienced Team

As Canada’s real estate landscape evolves, cities from Toronto to Vancouver see businesses purchasing properties. Across the country, lenders are broadening their offerings to meet diverse borrower needs, making it easier to achieve your goals with proper preparation.

Securing a residential mortgage as a business in Canada has complexities, but experienced guidance and careful preparation can help you unlock the benefits.

Whether you’re a first-time borrower or seeking to expand your portfolio, Mortgage Connection can help you find stability in a complex market. Connect with our team to explore your options.