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Residential vs. Commercial Loans

The two most common types of loans are Residential loans and Commercial loans. A Residential Loan is a mortgage loan that uses an owner occupied dwelling as collateral, while a Commercial Loan is a mortgage loan that uses commercial real estate as collateral for repayment. Most beginning investors find that loans on residential properties are much easier to get started with, mostly due to the smaller down payment requirement. Once you have done some deals and made some money, it may be easier to purchase a commercial property if you choose to. Below is a comparison table showing some of the differences between residential and commercial loans:

Residential Commercial
Smaller down payments (0-10%) Larger down payments (20% or more)
Single-family homes Commercial buildings
4 units or less 5 or more units
Market interest rates (depending on credit) Higher interest rates