Jul
10
Commercial vs Residential Mortgages for multi family properties under 5 units?
By
How do you differentiate between residential and commercial mortgages. I am looking to purchase a two-family (2 unit) building for investment purposes. I intend to put the deed in an LLC and rent out both apartments.
Since it is a residential property under 5 units, I am unsure whether it is qualifies as a commercial or residential mortgage.
Thanks for any input you can provide.
Real Estate Professionals
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3 Comments
July 7th, 2009 at 8:39 am
A property that is four units or less is considered residential. Your duplex is a residential property and you should be able to get a conventional residential mortgage for it.
The only caveat to that is your investing experience: Once you own 30 or more properties, mortgage lenders will consider you a commercial investor, not residential.
Rick
July 7th, 2009 at 5:51 pm
It qualifies as a residential mortgage if you intend to live in it or at least pretend to want to live in it. Anything over 4 units is automatically considered commercial.
July 9th, 2009 at 4:50 pm
Residential units are considered 1-4 units. If you stay in one of the units then it is considered an owner occupied property thereby qualifying you for a lower interest rate.
Five (5) units and above are considered commercial units.
What is the purpose of placing the units in a LLC? Is if for liability purposes?
The units that you place in a LLC will not be able to refinance without your personal guarantee, even if you find a lender that will allow the refinance. Some lenders will require you to place the property in your personal name the same as they do those that have family trust.
You should consider a LLC after you have several units you can place in your LLC. This way your LLC if ran properly can probably qualify on it’s own for a mortgage, because it will have a verifiable income, money in the bank of the LLC.
If the LLC can not prove that it can make the mortgage payments have a stable income and other qualifications to satisfy the lenders then you are going to get a recourse loan as oppose to a non-recourse loan.
Don’t let someone talk you into something that will not help you in the immediate future. Talk to your CPA or person that does your taxes before forming a LLC.
I hope this has been of some use to you, good luck.
“FIGHT ON”