Expert: Dick Dennis - 4/11/2010

Question
Hi,
My question comes in regards to residential loans for a commercially zoned property. I live in a very small community, Cheyenne, OK. The property in question is surrounded by 80% residential properties. At one time the property itself was a nursing home. It has now been closed for approximately five years. I have only dealt with residential loans personally in the past. We have spoke with the owners of the property as well as the city mayor in regards to having the property residentially zoned to initiate the loan process. The owners stated that they have had the electricity residentially zoned since the doors were closed; however, they have not had the property changed from commercial to residential. Okay, so here lies the problem. Can you get a residential loan for a commercial property, or does the zoning need to be changed to residential? If this is so, what is the best cost effective route? Thanks for your support!
Frances Williams

Answer
Most likely, Frances, almost any bank you ask for a residential loan on a commercially zoned property will refuse your request. They will most likely insist on making it a commercial loan because it is zoned commercial.

Why? Because commercial properties usually are valued more and the risk is higher. For the same reason the insurance you will need on the property will be higher. Right now that commercial property also pays more taxes, too. For that reason, the county may be reluctant to lower the zoning back to residential.

So, your best bet is to consult with a land engineer who is familiar with the tricks of zoning property BACK to residential. That person will know who you should talk to and how the rezoning should be done . . . if it can be done. Each town or county has its own idiosyncrasies. But if you can do it this way, it is the best way if you expect to get a lower costing loan on the home.

Here is another concern by the bank: you might change your mind and go back to using the property for commercial reasons some time after living in it, or if you sell the property the buyer may want to assume the loan because it is a lower interest rate. But the lender will really put their foot down if that should ever happen. I do wish you well, Frances.

Dick Dennis
dixiedee13@aol.com