Differences between Residential and Commercial Loans

People might apply for a loan for various reasons. Some might want a home and others might want a loan for purely commercial purposes. Hence there is a huge difference between home loans and commercial loan. Anyone who wants a loan should be knowledgeable about the possible and evident differences in the types of loans available. This will make the application process much easier and moreover as the different loans have different interest and payback options, you might end up choosing the wrong loan pattern and hence have to pay much more than needed.

When you decide upon the loan make sure whether it is a home loan or a commercial loan. Someone who wants to own a home for himself will want a loan to finance his home buying. But business concerns though might not need the capital income will look for loans to expand their business or increase their inventory to increase sale manifold to keep up with the increase in demand for the holiday or festive seasons. These loans are called commercial loans.

Each loan types have different application process. The terms and conditions of the application will also vary as the home loan mostly depends upon the financial position of the individual. The commercial loans on the other hand might need the profitability proof to provide a commercial loan and the business position and its creditability.

Residential loans

Residential loans are qualified for a building with one to four member families. If it houses more residents then the loan is converted as commercial loans. The borrower of loans has to provide details and documents supporting his financial status. This condition might also vary according to specific locations. He might also be needed to provide tax returns for the previous two years. Salary or pay slips from your employment house and minimum three month bank statement from the bank is also necessary to qualify for a residential loan.

All documents will then be filed and scrutinized before providing the loan. The loan repayment scheme will be chalked out keeping in mind the income and repayment amount which you can possibly bear. When the lender approves the loan you are offered the amount for which you are committed to pay interest for the limited number of years or loan term. The loan process is a long one and needs a lots of patience as the lender will have to check for the authenticity of the papers submitted by you.

Commercial loans

Income and expenditure of the last two years, rent paid or collected for the commercial building and the value of the building will determine the face value of the loan to be granted. The statements to be submitted to the lender are the cash flow statement, LTF or loan to value ad a debt coverage ratio (DSCR). After scrutinizing the papers and statements produced the lender might then process the application based on the available data and fix a loan amount. When the loan repayment term and the interest are set the borrower then gets the loan on his acceptance of the rules and the regulations.

Author

Gus Taperman holds a Bachelor's degree in Commerce and completed his master's in Business Administration . He is working as writer and financial consultant http://www.taperman.com