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What Are the Main Differences Between Commercial Real Estate Loans and Residential Loans?

What Are the Main Differences Between Commercial Real Estate Loans and Residential Loans?
Investments can be tricky, and if you are looking into making more money in real estate, keep in mind that loans may appear the same, but they are not. Before venturing into commercial or residential real estate, there are a few things that you will need to consider, from different interest rates, loan terms, amortization periods, and penalties. Banks will also look into the types of income you have and if the real estate property generated revenue.    Interest Rates Commercial real estate or CRE and residential loans have different interest rates; CRE are considered at a higher risk, therefore, are required to pay more than residential loans. Commercial interest rates will go up or down depending on the standard index. On the other hand, residential interest loans usually have a fixed rate, depending on the term.   Additionally, the index for interest rates tied to CRE loans is typically different then residential loans, and do not have as much volatility in rate changes.   Down Payments Both residential and commercial loans will require a down payment. For residential loans, it can be as low as 3-5% of the loan. Commercial loans require more, with minimum down payments depending on the asset class typically starting at 25%, but many types of assets start at a minimum of 35% down.       Amortization Periods and Loan Terms Since the risks are higher for commercial real estate loans, their loan term is also made shorter. They typically have a “due in ten year” clause, wit......
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