New to Real Estate · Fort mill sc · Member since 2020 · 5 posts · 4 votes
Hello all, I am currently getting ready to get into my first deal on a single family house. I am purchasing it contract for deed from the current owner and will be using it as a rental. The owner has chosen an interest rate from the current commercial lending rates, which was higher than the current residential rate that I had been expecting. They say the reason is due to this property not being my primary residence, that the loan will have to be commercial. I have tried looking online and all over the forums to find an answer for why this is but I couldn't find anything specific. I called a local bank of mine and they said the same thing, that it would be a commercial loan as it is not my primary residence. Everything I have found online says single family houses generally do not qualify as a commercial loan and it is not zoned as a commercial property, so I was hoping someone may be able to shed light onto this for me. My initial understanding was that it would be under residential terms as it is a residential property, but perhaps I am missing something. Can anyone help to elaborate a bit? Any and all advice and insights are greatly appreciated.
@Mitchell Barna pretty simple. A higher perceived risk on a non owner occupied loan. You will do everything to stay in your personal house but the most you can lose in a non owner occupied transaction is your down payment. You can negotiate any terms you want, If it doesn't make sense walk away.
@Mitchell Barna pretty simple. A higher perceived risk on a non owner occupied loan. You will do everything to stay in your personal house but the most you can lose in a non owner occupied transaction is your down payment. You can negotiate any terms you want, If it doesn't make sense walk away.
If you haven't already, reach out to 20 or 30 lenders and get the details. You should find one that has some better options than what you stated. You will have a higher interest rate with stand alone rental properties but should be consistent with the current interest rates. Ideally, if you can find a "Portfolio Lender", someone who keeps their loans on their books instead of selling them on a secondary market like Freddie or Fannie loans, that would be the best option if you plan to expand your rental portfolio into the future. Hope this gives some direction! Cheers!
The reason it is considered a commercial loan is because it is a non owner occupied loan and it typically (and sometimes required) will be in the name of an LLC. So since it is a loan to a corporation then it would be considered a commercial loan even though the property may not be a commercial building and is residential. You can get a residential loan non commercial through a bank or mortgage lender however the guidelines are more strict and more based on you the borrower as opposed to being mainly based on the asset and it's potential performance.
I hope this helps and if anything does not make sense and you need more clarification please feel free to reach out.