You as a real estate investor have access to a wide range of funding choices. In this article, we'll go through the two most popular financing options for your purchase and point out the main point between commercial vs residential loan difference.
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Parameter |
Residential Loan |
Commercial Loan |
LTV Ratio |
The LTV ratio for residential buildings ranges from 75 to 85%. |
The LTV ratio for commercial properties is very low, at 55%. |
Interest Rates |
Interest rates for residential loans are less than that for commercial loans. |
When compared to loans for residential property, commercial property loans have a higher rate of interest. |
Loan Term |
Residential property loans are available for terms of up to 25 to 30 years. |
A 10-year maximum loan term is normally the limit for commercial properties. |
Loan Processing Fees |
Processing fees for residential loans are very less than that for commercial loans. |
Compared to processing fees for residential property loans, processing fees for commercial property loans are much higher |
Processing Fee Amount |
The typical processing charge for residential real estate loans is Rs. 10,000. |
But the processing cost for commercial loans is typically 1% of the loan amount. |
What are the main points about commercial real estate loans vs residential?
1) The builder must acquire the necessary legal department and other department certifications, approvals, and permits. Due to any pending approval, it should have been a risk-free construction on the site. Even though this applies to residential structures, it is more strict when it relates to commercial property.
2) Verify that every technical requirement is met by the commercial building. Items like elevators, shafts, fire extinguishers, staircases, and emergency exits must be made correctly, with a note that a technically qualified team will thoroughly verify it. The inspection needs to be perfect because it's a commercial property. This is the main point about the difference between residential and commercial loans.
3) When compared to home loans, the loan margin for commercial real estate is generally not high. For example, if you want to buy a commercial building costing 10 crores, you might only be able to borrow the first few crores. You might be qualified for more, but some lenders limit the loan margin out of concern that the debt would default.
Commercial vs residential loan difference must be clear to you now.
Read More: What is a commercial construction loan? How to qualify for a commercial real estate loan? What is the home loan process? What is a home loan balance transfer?Authors Of The Question
Difference between residential and commercial loans?
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February 28, 2023
2023-02-28T17:28:08+00:00 2023-03-02T13:11:20+00:00Comment
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Banking
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