Residential vs Commercial Hard Money Loans – What’s the Difference

Choosing the right type of loan for your investments, residential vs commercial, can impact your investment profitability and should be driven by your strategy. This article will help you decide which makes sense for you.

Real estate investors typically acquire properties and either fix them up for resale or rent them out to tenants. Lots of evidence shows this is a proven path to wealth development, it takes money to make money (as the adage goes). The problem is that real estate investing is very capital-intensive and ties up your money for decades.

Perhaps the biggest challenge is that investors are limited by their lack of capital. Even those that don’t mind tying up their money, are limited in the number of deals they can execute on. If you want to grow your portfolio, you will need more money.

That’s why many investors are turning to hard money loans as a source of capital to help them acquire additional properties. A hard money loan is a special loan type for investors to help them acquire properties and renovate them.

If you’ve been researching hard money loans and wondering what the difference is between residential vs commercial hard money loans, this article may help you.

The type of loan that works best for you depends on many factors, but here are a few things to consider…

  1. The first consideration is the property use. Is the property going to be residential (a place to live) or commercial (a place to work). If it’s a workplace, you’ll likely need a commercial loan. If someone will be living there, then it could be a residential or commercial loan…
  2. If people are living on the property, then it comes down to the size of the structure. A single-family home, duplex, triplex, or quadplex is eligible for a residential or traditional loan. Properties with more than four units (5+) are called multi-family and don’t qualify under the requirements for a qualified mortgage loan. This is due to both government regulations and requirements from Fannie Mae and Freddie Mac. Related regulations impact everything from requiring commercial insurance to utility deposit requirements.
  3. There are other factors that impact if it’s a residential vs commercial hard money loan, such as: whether it’s a new development or a smaller renovation of an existing property; whether it’s a structure or a set of structures (such as a mobile home park), and what the end use will be (such as if you’re renovating a house to be a retirement home for several non-related renters).

Which Loan Type to Use?

Most investors use residential (traditional or qualified loans) when they can for long term “buy-and-hold” purchases. In general, the rates are lower, terms are longer (up to 30 years) and the down payment is smaller. On the commercial loan side, you can receive loans quicker, personal credit is less of a factor, and you can obtain loans for As-Is homes. The limit on residential loans is that you can generally have only 5-10 loans (depending on your lender’s requirements).


Which do you need? Residential vs commercial hard money loans? It depends on a lot of factors. Residential loans have better terms for long term holding. Commercial loans are great for rehabs (where higher rates and shorter terms don’t really matter) and when you run out of options for residential loans.

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