Residential Versus Commercial Investment Property Loans

Posted on: January 14, 2012

Categories: Commercial Building, Other Articles

Author: lbuen

300px Matrices B4 Residential Versus Commercial Investment Property Loans

Understanding Commercial Investment Property Loans to Get Approved

You may be one of the many investors who are attracted to commercial investment properties because of their monthly earning potential, not to mention the serious prospect of capital gains over the long haul. If you are thinking about venturing into this kind of real estate investment, you would definitely need a commercial mortgage. Before taking any form of funding though, you have to have a good grasp of what it is to better your chances of getting approved. You must realize that it is not enough that you are a strong borrower. What better way to understand commercial investment property loans than to compare them versus the more common residential property loans?

The Differences Between Residential and Commercial Investment Property Loans

Whose Money Are You Borrowing?

Commercial investment property lenders lend their own money, whereas residential lenders or some residential financial institution do not really lend their own money. They initially fund the loan, then sell the loan to Freddie Mac and Fannie Mae, hence, getting back their money relatively sooner than when they finance commercial investment property loans, although the residential lender will continue to have the servicing rights. Subsequently, Freddie Mac and Fannie Mae will package all these loans and hand them over through to mortgage backed securities and similar investors. This is one vital difference between the two kinds of mortgages that you must understand.

Where Do Your Payments Go?

Owing to the foremost difference we mentioned, you now can follow that when you pay for your commercial investment property loan, there are no big second-layer lenders, like Fannie Mae and Freddie Mac, expecting to reimburse the primary lender. Your payment would most likely be used by your lender to lend the money to other companies looking to invest in commercial properties. With a residential loan, Freddie and Fannie will hang around.

What If You Default?

A number of commercial investment property loans are nonrecourse. This means that if you default on payment, your lender can take hold of the collateral. This is because without the titan lenders that residential mortgages have, commercial lenders are left in the lurch with a sorely performing asset, and their only recourse is to sell the property. For nonrecourse loans, however, they do not have further claim against you for any balance. For this reason, the qualifying criteria are often stiffer as lenders are more selective in approving commercial investment property loans as they would be with residential mortgages.

So now that you already have a good grasp of the behind-the-scenes of the lending world, you now have an idea on how to get to work on your loan application. But remember, no two properties are exactly the same, so even if they are both commercial properties, do not expect them to get the same terms in their commercial investment property loans. The particular property you choose to invest in is a big factor as to whether or not your loan application gets the thumbs up or the thumbs down, so choose astutely.

 Residential Versus Commercial Investment Property Loans
pixel Residential Versus Commercial Investment Property Loans

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