Land and anything permanently affixed to the land, such as building, fences and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached, is called Real Estate or Real Property.

A loan on real estate that is usually secured by a mortgage is called Real Estate Loan.

There are 2 basic types of real estate loan:

• Commercial Real Estate Loan
• Residential Real Estate Loan

With a commercial loan, the property and its history of making money top a lender's list of criteria. Buyers will need to show lenders at least two years' worth of tax records and/or profit-and-loss statements from the building to demonstrate its success as a "business enterprise." They will also have to make a higher down payment -- a minimum of 20% to satisfy commercial-lending requirements, and borrow at a higher rate. For small investors, interest rates may be about one percentage point higher than residential mortgage rates. Commercial loans, unlike many residential loans, are rarely arranged at fixed rates or for 30 years. 

Buyers using a commercial loan pay anywhere from $1,000 to $2,000 for a property appraisal. That's because a commercial appraisal evaluates both the building's structure and its "financials" -- vacancy rates, whether it's self-supporting, and how it competes with similar properties in the area. 

Advantages: They are:

• There are advantages to commercial loans for some buyers, though, particularly if they're planning to "flip" a property within a short timeframe. A commercial loan might provide an attractive near-term rate, ideal for such buyers.
• If you are planning to pair up with other investors on a multiunit building then commercial loan  may be a useful strategy.                                                                       Back

Residential Real Estate Loan: This loan can be used to buy, improve or refinance residential property. New investors stick to residential loans when making their first property investment. After that, they might consider diving into a larger building requiring a commercial loan. However, a group of small investors might successfully pool together to buy property via the commercial route. Individuals who have a lot of cash but poor credit scores also may be more likely to secure a commercial loan, since commercial lenders place more emphasis on a building's potential to make money than on the individual buyer's credit history.

For a residential loan, a buyer's credit history, the ratio of loan-to-value and cash reserves are major criteria. Buyers of up to four units can tap a wide array of loan packages just as they can for a primary residence. Thus, they don't have to tie up a large sum of cash for the purchase. Interest rates track the residential mortgage market, which as of August 23, hovered around an average 5.43% for a 30-year fixed loan. Buyers using residential loans pay from $200 to $400 for a property appraisal.  

Advantages: They are:

• Residential loans may be good for buyers planning to hold on to a property as a long-term investment. A residential mortgage with a 30-year term could be easier to manage than a commercial loan requiring a higher down payment and fluctuating rates.
• A residential loan might be easier to secure since commercial lenders want to see proof of profitability.                           Back
  

To conclude we can say that, with a residential loan, you're not deemed to be a knowledgeable buyer. With a commercial loan, you're considered a knowledgeable buyer.

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