Commercial or residential loan?

Question

I would like to get into the comercial real estate market. So I been looking around and I think I found a property I like.

So for commercial properties, they are considered full investments so typically you need to give 20-25% as a down payment.  As opposed to residential, where you can give as little as 3% for an FHA loan if it’s your primary residence.

So here is the scenario:

The property that I am looking for is a two story building. On the first floor, you have a business renting from you. The top part you have a residential unit.  I am not too familiar with the zoning but it looks like the bottom is zoned for commercial and the top for residential.

I was wondering if it’s possible to get a loan to buy the property as my primary residence, get a conventional loan, and live on the top floor, while rent ion out the bottom.

Really I am just trying to buy the property By giving just 10% conventional with PMI. Is that possible?

Thank you all in advance.

Guifre Mora · Answer

If it’s 65% residential and 45% commercial the answer is yes. But this will be determined by the appraiser and you will need to qualify as it would be owner occupied property.

Allen Lopez · Answer

@Guifre Mora

So it sounds to me like I will not be able to do this since there is a business (not run by me) downstairs, and it’s about 45% of the living area.

I was hoping to do a primary home conventional loan with 5% down, while paying PMI until 20% is payed off.

Do you agree?

Guifre Mora · Answer

Allen this is a mix-used building and probably zoned as such. Mixed-use property financing applies to properties that are comprised of multiple units zoned for different uses, including residential, commercial, industrial and institutional. Almost any building with at least two units of different usage qualifies for mixed-use financing.Conventional loans underwritten to Fannie Mae or Freddie Mac guidelines are an option as long as the loan amount meets conventional limits. There are a few things that are different about financing a mixed-use unit but one of the more important is how much space is dedicated to commercial and how much to residential. Remember, Fannie and Freddie primarily buy residential loans and leave commercial financing to others. That said, there is a limit on how much space can be dedicated to commercial. These guidelines require that no more than 25% of the livable space be dedicated to commercial. For instance, if the building is 5,000 square feet of livable space, then commercial occupancy is limited to 25% of 5,000 or 1,250 square feet. These loans also ask the borrowers both occupy the building as a primary residence and own and operate the business or businesses located in the building.

FHA loans can also be an option. As with any government-backed loan, FHA also requires the borrowers to occupy the property. But FHA allows for more space to be labeled as commercial. Up to 49% of the livable area can be commercial. Note, the square footage assessment does not apply to parking garages or similar areas.