Differences Between Commercial and Residential Mortgages

Commercial mortgages and residential mortgages differ in significant ways, making it essential to understand these distinctions when financing a property.

• Purpose: Residential mortgages are for homes you live in, while commercial mortgages are for income-generating properties or business premises.
• Loan Terms: Commercial loans typically have shorter repayment terms, often 5-20 years, compared to 15-30 years for residential loans.
• Interest Rates: Commercial mortgage rates are usually higher due to increased risk.
• Down Payments: Commercial properties generally require higher down payments, often 20% or more.
• Approval Process: Commercial loans often require more extensive documentation and analysis of the property’s income potential.

These differences highlight the need for specialized expertise when securing financing for commercial real estate.

FHA Loans for 4 Units or Less vs. Commercial Property and Apartment Buildings

FHA loans are often a great option for financing residential properties with up to 4 units, such as duplexes or triplexes. These loans offer low down payments, as little as 3.5%, and favorable interest rates. The key benefit is that you can live in one of the units while renting out the others, making it a popular choice for first-time investors.

However, once you move beyond 4 units, the property is considered a commercial investment. Apartment buildings with 5 or more units require commercial mortgages, which come with different terms, higher down payments, and stricter qualification requirements. Financing these properties often involves SBA loans, conventional loans, or asset-based loans, depending on your financial situation and goals.

Your Options for Financing

• FHA Loans: Best for residential properties with up to 4 units.
• SBA 7(a) or SBA 504 Loans: Suitable for small businesses or expanding investments.
• Bridge Loans: Ideal for short-term needs while securing long-term financing.
• Conventional Commercial Loans: Great for well-qualified borrowers seeking flexibility.
• Property Investor Loans: Tailored for income-generating rental properties.

Understanding these distinctions helps you select the right financing and ensures you’re prepared for the unique challenges of commercial real estate.

Types of Commercial Mortgages

There are several types of commercial mortgages available, each suited to different needs. Understanding these options can help you choose the right financing for your property.

SBA 7(a) Loans

The SBA 7(a) Loan is popular for small businesses looking to purchase or refinance real estate. It offers low down payments and longer repayment terms, making it an accessible option for many entrepreneurs.

SBA 504 Loans

The SBA 504 Loan is designed for businesses looking to expand or purchase fixed assets like commercial real estate. It features low-interest rates and long repayment terms, perfect for large purchases.

Bridge Loans

Bridge Loans are short-term financing solutions that "bridge" the gap until permanent financing is secured. These loans are ideal for businesses needing quick capital for a purchase or to cover expenses during a transition.

Asset-Based Loans

Asset-Based Loans use the property or other business assets as collateral. These loans are helpful when traditional financing options are unavailable due to credit challenges or cash flow issues.

Property Investor Loans

For those purchasing commercial real estate as an investment, Property Investor Loans offer financing based on the property's potential rental income. These loans are ideal for landlords and property developers.

Conventional Loans

Conventional Loans are provided by banks or private lenders and often offer flexible terms for well-qualified borrowers. They are suitable for those with strong credit histories and solid business financials.

Other Popular Options

• Hard Money Loans: Short-term loans from private lenders, often used when speed is crucial.
• CMBS Loans: Commercial Mortgage-Backed Securities loans are packaged and sold to investors, offering fixed rates and long terms.
• Mezzanine Financing: A hybrid loan that combines debt and equity financing, typically used for large projects.

The Importance of Working with a Mortgage Broker for Commercial Property Financing

Navigating commercial real estate financing is complex, and working with a mortgage broker can simplify the process. Here’s why partnering with a broker is crucial:

• Access to More Options: Brokers have relationships with various lenders, giving you access to more loan products than you’d find on your own.
• Expert Guidance: Brokers understand the nuances of commercial lending and can match you with the best loan for your specific needs.
• Save Time and Money: Brokers handle the research, paperwork, and negotiation, ensuring you get the best terms without the hassle.
• Customized Solutions: They tailor financing solutions to your business goals and property type.

A mortgage broker helps you avoid costly mistakes and secure financing that sets your business or investment up for success.

Ready to Start? Apply for a Commercial Loan Today

If you’re ready to explore your commercial property financing options, take the first step by starting your application with Chissell Mortgage Group. Our expert brokers are here to guide you through every stage of the process.



Start a Commercial Loan Application and find the financing solution that fits your needs.