Difference between Commercial and Residential Loans

If you are a real estate investor searching for new investment opportunities, you will need to know the difference between commercial and residential loans to decide which method is best for your specific circumstances.

Real estate that is used for business applications is considered a commercial property. Several states will allow residential properties to qualify for commercial tax advantages and regulations for those that have a predetermined number of rental units.

Examining the Difference between Commercial and Residential Property Loans

The following examines the key elements of commercial vs. residential loans.

Residential Loans

Residential loans used for investment properties follow essentially the same process as personal home loans. The main difference being that both down payment amounts and interest rates will wind up being larger. Like primary residence loans, you can get a residential loan for commercial use of a property for 15 or 30 years. A 30-year mortgage for a residential loan will give you more flexibility and allow you to keep your options open down the line.

Also, aligning with a primary residential loan, qualifying factors for residential loans for commercial purposes revolve around your personal finances and your ability to pay the loan back. Loaning institutions will need a full complement of information, including pay stubs, tax returns, and other financial documents. The process is slow, complicated, and arduous, but the systems are in place to protect the bank and your financial future.

Finding a lender who understands the differences between commercial vs. residential real estate and specializes in loans for rental properties will help to secure you the best deal possible to fit your needs.

Commercial Loans

Commercial loans can be secured for the purchase of any rental property, including a single-family home. Investors tend to rely on residential loans for smaller properties, as commercial loans typically cost more and come with higher interest rates and shorter terms, which significantly increase monthly mortgage payment amounts.

Residential loans are an option only for properties with one to four units. For buildings or complexes with five or more rentable units, a commercial loan is required.

Similar to finding a lender who specializes in residential loans, commercial loans should be secured from a bank that has experience in the specific type of commercial property you are looking to purchase for your businesses. For example, some banks cater to large, sprawling apartment complexes, while others primarily work with investors on smaller individual apartment buildings and single-family home rentals.

Commercial lenders need to be able to calculate the expected cash flow and forecast a business’ success in a specific location before being able to approve your loan.

MyEListing.com is a Valuable Resource for Commercial Property Sales

Understanding the difference between commercial and residential property loans is the first step to acquiring commercial property for business use. For complete information on commercial vs. residential real estate, contact or log on to MyEListing.com today.

Share on facebook
Share on google
Share on twitter
Share on linkedin