Residential vs Commercial loan as a 1st time buyer

Rental Property Investor · Santa Clara, CA · Member since 2018 · 2 posts · 0 votes

I will be buying my first investment multi-family property. As a first time buyer, would it be easier to obtain a residential loan for a 4-plex or a commercial loan for a 6 to 10 plex? I will not use FHA or will I be living in one. Credit history is very good and 20-25% down payment is no problem. Thanks BP as this is my first post.

0 Reply

26 views

4 Replies

Jump to latestLatest

Sort by

Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
7y
One piece of info missing here is the approximate loan amount.
In general, there are many commercial lenders who will allow a first time investor on a 5+ unit given certain conditions. However, because of experience it is unlikely that you'd be offered 80% leverage. Most likely 70-75%.
What market are you looking in?
[email protected]818-606-8823
Investor Property Loan5307 Reviews
Website View Page
0 Reply
Jerry Padilla
Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
7y
@Yia Vang
I would recommend looking educating yourself on both options and then deciding what works best for you to start out.
With Conventional financing you can obtain long term financing out 30 years. Typically, with commercial financing, it is amortized over 20 -30 years, but then has a balloon payment due in 5 -10 years. So you will either be refinancing or having to pay the balloon. I am glad to send you info on residential financing.
0 Reply
Tim Milazzo
Lender · New Smyrna Beach, FL · Member since 2017 · 122 posts · 54 votes
7y
@Yia Vang - it's a bad strategy to get a commercial loan on a few units if you're going to be living in one, because:
1. Commercial loans have a minimum income requirement, called the Debt Service Coverage Ratio (DSCR). If you're not paying yourself rent through another entity, your income may not meet the requirement.
2. Commercial loans typically have higher rates for small investments for inexperienced borrowers.
3. Pair this with lower leverage, especially if you're living in one unit, so you'll need a larger down payment.
4. You'll most often see a prepayment penalty, so it's not as readily exited as a residential mortgage.
Stick with the 4-plex and the resi mortgage unless you're going after 10+ units and don't plan on living in it.
0 Reply
Justin Kane
Specialist · San Antonio, TX · Member since 2015 · 909 posts · 297 votes
7y
you should ALWAYS go with MORE UNITS.. but if you only have a good 4 plex in front of you and money is not an issue than go with your standard federal fannie freddie and put down 25%. what you really want to watch out for in this market is OVER LEVERAGING
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.