Residential or commercial refinancing??

Question

Good evening,

I am in in the process of refinancing one of my multi family properties (2unit). I now have a choice to either do a residential or commercial refinance. I have never done a commercial refinance. Would it be beneficial to pay the extra money for the commercial appraisal since it is just a 2 unit property?? Can someone explain to me how the valuation is calculated when doing a commercial loan?

Property details:

102k Purchase price (no debt owed)

Monthly income $2,750

Andrew Postell · Answer

@William Bowers thanks for posting.  I do appreciate everyone's comments here but the real answer is your lender should be able to answer this for you.  There are over 8,000 different commercial loans in the US - which loan are they offering you?  Who knows?  But they do....at least, they should.  If they are offering you a product and cannot answer basic questions about it I want you to treat that as a "red flag".  Your lenders should always know the answers about their loans that they offer.  There are plenty of lenders that are very good with this niche and can provide really good service.  I don't mean to come down too hard here but I am saying it this way for a reason.  Some questions I would suggest asking your lender:

1. Are there any prepayment penalties to the commercial loan?

2. Is the commercial loan a 30 year, fixed rate?

3. Between these two loan types, what is the difference in the appraisal?

4. Does one loan type provide me a higher "loan-to-value" for me than the other?

5. Which loan allows me to bring less money to closing? (aka less out of pocket)

6. Why would I choose one loan type over the other?

7. Which loan would allow me to cash flow better?

If they say something like "let me go ask someone" - that's an issue.  But maybe they answer all of these questions clearly and give you a very precise answer and reason to choose one loan over the other.

Hope all of that makes sense.

Erik Estrada · Answer

Hey William,

What rate are you getting on the commercial loan and how much are you paying in origination fees?

Nate Sanow · Answer

I don’t think the valuation is different at all. Really the use of the word commercial is often in reference to using house money not loans sold off.

Eliott Elias · Answer

Residential rates are higher but the amortization schedule is longer, so your monthly payments are less.

Trevor Naumann · Answer

outside of being a realtor in upstate New York i have also worked as a closer for a number of years and seen a ton of loan products. In my opinion the commercial appraisal is unlikely to be superior to the residential appraisal with a 2 unit property. I typically see residential appraisals as going higher then commercial. that said i agree with Andrew above. A great lender should be educating you on what the best product is. The only thing i would add is that because NY has a unique closing style local banks are usually king when it comes to the best products in the state. That said a local bank only knows what its products are and each of them will have different products so shop around. I hope that helps

Nate Monson · Answer

@William Bowers On a refi, I would just shop the best interest rate and terms/closing costs you can. Whether it's a residential or commercial loan type wouldn't matter as much to me.

William Bowers · Answer

Yes, that is what I am doing. (Portfolio loan) the bank is giving me an option to do a residential appraisal or a commercial appraisal. My question is on the appraisal and how they differ. A residential appraisal is $400 when a commercial appraisal is $1000+. Would it benefit me to get the commercial appraisal?

William Bowers · Answer

Yes, that is what I am doing. (Portfolio loan) the bank is giving me an option to do a residential appraisal or a commercial appraisal. My question is on the appraisal and how they differ. A residential appraisal is $400 when a commercial appraisal is $1000+. Would it benefit me to get the commercial appraisal?

Carolyn Yates · Answer

The rates are often lower on the commercial loans too.

Luka Milicevic · Answer

All my investment loans are considered commercial loans. The bank that originates the loans holds them on the books (portfolio loan).

You're referring to a loan (residential) that gets sold in the secondary market?

I only ever do commercial loans and they have always been less expensive to originate than having "regular" loans done.

Residential or commercial refinancing??

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