In most cases, you can’t use a residential mortgage to buy a fully commercial property. These loans are meant for homes, not offices, shops, or warehouses. However, there are exceptions. If the property includes a residential space you live in, like an apartment above a storefront, you may still qualify for a residential mortgage, but it depends on how the building is used.
This question comes up often among first-time buyers, real estate investors, and small business owners. That’s because residential mortgages usually come with lower interest rates, smaller down payments, and easier approval than commercial loans. For buyers exploring flexible or mixed-use properties, these benefits are appealing.
In this article, we’ll discuss when a residential mortgage might be possible, the challenges you could face, and what financing options to explore if it’s not.
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What Are Residential Mortgages and Commercial Properties?
When exploring mortgage options, it’s important to know the type of property involved. Mortgages are usually classified based on how the property is used—either for living or for business. Residential and commercial mortgages work differently. Understanding their key differences helps avoid confusion when applying for a loan.
What Is a Residential Mortgage, and How Does It Differ from a Commercial Mortgage?
A residential mortgage is a loan used to buy a home. This includes single-family houses, townhomes, condos, and sometimes small multi-unit buildings, usually up to four units. These homes are meant for people to live in, not to run a business.
Residential mortgages usually have lower interest rates. They also come with longer repayment periods, making monthly payments more manageable. Lenders check your income, employment history, credit score, and existing debts when reviewing your application.
Commercial mortgages are used to buy properties for business purposes. These might include office buildings, stores, warehouses, or large apartment complexes. Lenders focus more on the income potential of the property than on the buyer’s personal income.
In short, the key difference lies in the use of the property. If the building is for living, a residential loan applies. If it’s for business, a commercial loan is needed.
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What Qualifies as a Commercial Property?
A commercial property is any building used to run a business. This includes office spaces, retail shops, clinics, restaurants, and warehouses. Apartment buildings with five or more units also fall under this category.
Some buildings serve both purposes—part business, part residence. In those cases, the classification depends on how much of the building is used for each. If more than half is used for business, the property is usually considered commercial.
What Are Mixed-Use Properties, and How Do They Relate to This?
Mixed-use properties combine residential and commercial spaces in one building. A common example is a retail shop on the ground floor with an apartment above. These properties are common in city centers or older neighborhoods.
Whether you need a residential or commercial mortgage for a mixed-use property depends on how much of the space is used for living. If the majority is residential, some lenders allow a regular home loan. If the commercial part takes up more space, a commercial loan is required.
For anyone buying a mixed-use property, it’s best to talk to a lender early. They can help determine the right loan type based on how the property is structured.
Can You Use a Residential Mortgage for a Commercial Property?
Most of the time, residential mortgages cannot be used for commercial properties. Lenders have strict rules. If a building is meant only for business use—like offices, shops, or storage units—you’ll need a commercial mortgage. These loans come with higher rates, stricter approval steps, and bigger down payments.
Is It Possible to Get a Residential Mortgage for a Commercial Property?
If you’re buying a purely commercial property, the answer is no. Residential mortgages are only for homes and similar spaces meant for living. Lenders do not offer home loans for buildings used entirely for business.
But if the property has both business and living space, things can be different. Mixed-use buildings might qualify for a residential mortgage. It depends on how much of the property is used as a home.
Lenders look at how the space is divided. If the residential part makes up more than 50% of the property, and you plan to live there, some lenders may approve a residential mortgage.
What Are the Conditions for Using a Residential Mortgage on a Mixed-Use Property?
To qualify, the building must be mostly residential. Most lenders want at least 51% of the space to be used as a home. That could mean living above a shop or office, as long as the living area is larger.
You also need to live in the home part yourself. If you’re just renting it out, a residential mortgage won’t apply. This rule is in place because home loans are for owner-occupied properties.
Zoning is another key factor. The property must be legally allowed to have both commercial and residential space. Some areas do not permit this mix, so lenders will check local rules.
Even if all these conditions are met, lender approval isn’t guaranteed. Some lenders are stricter than others. Others offer special loans for mixed-use buildings that don’t fit neatly into residential or commercial categories.
Real-World Scenarios Where a Residential Mortgage Might Apply
Residential mortgages can sometimes work for mixed-use buildings—especially when you live in the residential part and it makes up the majority of the space. Here are some real-life examples that show how this works.
One common case is a small apartment above a shop. If you live in the apartment and it makes up more than half of the total space, lenders often treat it as residential. This setup is common in city centers and high streets.
Some people use part of their home for work. If you run a small business or studio on the ground floor and live upstairs, the property may still qualify. Lenders will look at how much of the space is residential. If the home part dominates, you could get a standard mortgage.
In some cities, older buildings are being turned into residential lofts. You might buy a unit in a former warehouse that now includes both apartments and ground-floor retail. As long as you live in the unit and it’s mostly for living, a residential mortgage is usually fine.
Two-unit homes also qualify. If you live in one unit and rent out the other, lenders often treat the property as residential. This works best when the setup is small-scale, like a duplex or a triplex.
Another example is mixed-use buildings where residential units are stacked above shops. If most of the property is used for living, and you occupy one of the apartments, you’re likely to qualify. Lenders may ask for proof that over half the space is for living.
Sometimes, business owners live on the property too. A small restaurant or pub may have living space for the owner. If you stay there full time and the living area is large enough, some lenders allow semi-commercial mortgages with residential terms.
How to Approach Financing a Commercial Property with Residential Mortgage Options
Financing a commercial or mixed-use property with a residential mortgage isn’t always straightforward. But if the property has residential features—especially if you plan to live in it—some lenders may consider it. To increase your chances, you’ll need to follow the right steps, find the right lender, and avoid common mistakes that lead to rejection.
Steps to Take When Exploring Residential Mortgages for Mixed-Use or Commercial Properties
Start by checking the property’s zoning. If it’s zoned for mixed-use or has a large residential component, you may qualify for residential-style financing. Most lenders won’t consider a property zoned strictly commercial. Next, determine how much of the building is used for living. Many lenders want at least 50% of the space to be residential.
You’ll also need to show you plan to live there. Lenders typically require that the borrower occupy the home as their primary residence. Before applying, speak with lenders who understand mixed-use financing. Not all banks offer this option, so targeting the right ones saves time and improves your odds.
Finding the Right Lenders for Residential Financing on Mixed-Use Properties
Not every lender handles mixed-use financing. Local credit unions and community banks may be more flexible, especially if they have experience with unique property types. Mortgage brokers can also help by connecting you with lenders who specialize in these loans.
In the U.S., some larger institutions like Chase and Wells Fargo offer loans for mixed-use buildings. You can also explore options backed by Freddie Mac or Fannie Mae, as they sometimes work with properties that are primarily residential but include small commercial spaces. The FHA may also back loans if more than half the property is residential.
Tips to Boost Your Approval Chances
To improve your chances, prove that you’ll live in the residential portion of the property. This is one of the first things underwriters look for. Keep your credit score strong, as lenders use it to assess your risk level.
The more your property looks and functions like a home, the better. If possible, offer a larger down payment—this shows commitment and lowers the lender’s risk. Be transparent about your finances, especially if part of the building is rented out. Lenders may consider that rental income as part of your ability to repay the loan.
Common Mistakes to Avoid During the Financing Process
Don’t apply for a residential mortgage if your building is clearly commercial. Lenders will check zoning, and false claims can cause delays or outright denial. Always confirm that the use and layout of the property match what the lender allows under residential loan programs.
It’s also a mistake to apply with lenders who don’t offer mixed-use financing. Narrow your search to those familiar with these types of deals. And be careful with terminology—some lenders define “mixed-use” differently. If they see the property as primarily commercial, they might steer you toward a commercial loan.
Finally, don’t overlook hybrid loan options. If your property doesn’t fully qualify for a traditional residential mortgage, a semi-commercial or blended loan might offer a better path.
Conclusion
You can’t usually get a residential mortgage for a commercial property. Lenders treat commercial spaces differently and often see them as higher risk. Residential loans are meant for properties that are mostly used as homes and often require the borrower to live there.
Mixed-use properties may be an exception. If the residential part makes up more than half of the building, and you plan to live there, some lenders may consider a special mortgage. But this depends on lender rules, zoning laws, and the building’s use.
If residential financing isn’t an option, consider alternatives. Commercial mortgages, SBA loans, and owner financing are better suited for business properties. These options have terms designed for commercial use.
Always check what the property is zoned for and ask lenders about their policies. Choosing the right loan starts with knowing your goals and matching them to the right type of financing.