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What Makes Commercial Loans Different from Residential Loans

The basic difference between commerical and residential loans is the main use of the property.  Residential loans are used to typically finance homes in which you reside, owner occupied.  Commercial loans are used for typically income producing properties that are typically non-owner occupied. 

The four main property types which make up the commerical market include: office, multi-family (apartment dwellings), retail and industrial buildings.  Quite often, commercial loans are quite large and often require a separate management team to operate. 

Second mortgages are obtainable with residential loans while they are very rare with commericial loans.  Most commercial loans are adjustable and do not offer fixed-rate loan options.  And most all commercial loans have balloon payments due in about 5 to 10 years where the loan must be paid off or refinanced.

Unlike most residential loans, commercial loans are based upon the income of the property, not the income of the owner as is found in residential real estate loans.  The typical loan term for commercial mortgages is a 10 year loan with a 30 year amortization period and most commercial loans require a 20% downpayment from the borrower.

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