From “Ask Kit!”:
Q: What is the difference between a residental and commercial loan?
A: Generally residential loans have a 30 year loan term, with at “today’s” rates, and you put 20% of the purchase price down (you can put less down but then you have to buy mortgage insurance which costs money up front and each month). If you go the non-qualifying route (this loan has several names, including no- documentation and low-documentation) you’d have a higher interest rate and probably put 30% down. You can also get adjustable rate mortgages which means that your interest rate is quite low initially and after a stated number of years (1-5 years is typical) the rate adjusts annually, going up or down 1-2 points (depending on the program) with whatever indicator it’s tied to.
Commercial loans can be moderately competitive with residential interest rates or can be outlandishly higher. I’ve heard of interest rates at 14%! Given the low rate these days that’s close to highway robbery, in my humble opinion. ;~) Commercial lenders don’t have to subscribe to the same rules of disclosure as residential lenders and because of one bad interaction with a commercial lender I’m biased against them — even knowing that sometimes that’s the best or only way to go. The term is much shorter, 20-25 years typically. The down payment is higher2 30-40%, typically.
And the interest rate can be fixed for 20 years, or adjust monthly.