Conventionsl vs commercial RE loans

[Paul Kubin]

I am a new real estate investor looking to buy single family and small multi family investment properties out of state. I'm working with an agent I like who is an experienced investor. He has encouraged me to look at commercial RE loans at a local bank he has used for many of his investment properties. I've been preapproved for 4.25 to 4.5% depending on the property, but have yet to see the exact terms, which I have requested. I've also heard from my agent that this bank will do no down and sometimes will make construction-type loans based on projected ARV. 

Are there catches I should be aware of? When would it be wiser to use a conventional home mortgage than a product like this?

[David M.]

@Paul Kubin

Here is another question:  Why not use a conventional loan?  Yes, it will have more paperwork, but all conforming loans do, and the conventionals have the least of the bunch.  Yup, you'll still be around 4.25% probably, but it will have better terms -- fixed 30yr...  No prepayment penalty..

As far as future loans, the existing loan's payment will be part of your dti calc's. For that matter, the whole thing will be... Take 75% of your rent (not yoru profit/loss) and subtract your princpal, interest, tax, and insurance payments. That is your front end calc towards your DTI. So, if its cashflowing really well, it will help you qualify for hte next loan... Anyway, this is the simplified version.

Good luck.