Commercial v s Residential

Although both commercial and residential mortgages are meant to provide finance to the borrowers in order to buy property, though for different purposes, the two has some real major differences in terms of fees, rates and the amount of space designated to resident and for business.

There are time when you mix loans fr the type of property you are about to purchase for it might have the spacing of the commercial property but it also has a residential portion which you are keen to lease out on the property. However, it will be considered as the commercial property only. Though you have the option to talk to your lender and seek the benefit of what you want and the right way it can be obtained.

Income matters

While lending finance, one of the most important thing to consider for the any lender would be the credit score of the borrower. For residential mortgage, what lender looks at is your personal gross income and the amount of debt you owe. As a rule of thumb, lenders take into account that your debt is no more than 45 percent of your gross income. Also, your mortgage payment should not cross the 28 percent. On the other hand, while you apply for a commercial loan, the capability of the property being considered to generate income compared to the debt on it.

Down Payments

The down payment for residential mortgage is almost negotiable, that can be easily achieved on relatively zero-down mortgage if you have good credit. However, commercial loans are more riskier, hence lenders generally require a 20 percent down payment and an 80 percent Loan-to-Value Ratio while proving your with the same.

Length of payment

The standard residential home loans are offered for the period of 30-year term. These can also be negotiated between 15-year to 40-year terms. On the other hand, for a commercial loans, again because the risk is higher, thus the loan is preferred to be extended for just 10-years.

Interest Rates

Most of the banks have fixed interest rates for residential mortgages, whereas commercial rate vary greatly even among the different loans in the same banks. However, commercial real estate rate remain fixed for the certain limit say for 5 years but after that the rates would adjust to the index.

Fees Charged

Fees charge on commercial loans is more that what it is charged on residential loans. This can be due to a lot of documents and paperwork involved while gaining commercial loans. Say for example the fee for attorney-prepared documents required for commercial loans can run into the thousands.

Penalities

Typically, a residential loan can be paid off at any time, without penalty. However, commercial real estate loans typically do have prepayment penalties. Although it all depends on the risk of the loan estimated by the lender.

If you have been looking fro the mortgage loans be it residential or commercial it is advised to pay attention to the above mention difference in order to make a wiser choice.