For brokers looking to earn additional income, adding commercial mortgages to your product offerings is a great way to expand your business. Small-balance commercial mortgages in particular are a great way to get started in the industry.
Before you begin looking for leads, though, it’s important to understand the differences between commercial mortgages and residential mortgages in order to avoid common missteps such as:
The biggest difference between residential and commercial mortgages is the interest rate. Borrowers looking for home loans can expect lower rates than those looking to finance a commercial property. This is in part because commercial mortgages require a higher degree of specialization on the part of the lender, as well as a greater risk if the borrower defaults.
The residential mortgage industry is more heavily monitored than the commercial mortgage industry, which generally means more documentation is required, the loans take longer to close and brokers are limited in terms of the amount they can make in commissions. The commercial mortgage industry is less regulated, which usually makes for a smoother, quicker transaction, and the broker fee caps are generally higher. These looser regulations allow brokers to close more loans and earn more money.
Residential appraisals are generally fairly simple in scope and, therefore, inexpensive. Commercial appraisals vary greatly in cost depending on the property type, the size of the building and the collateral’s location.
Closing commercial mortgages is a great way for residential brokers to diversify and earn more throughout their careers, but it’s important to understand the key differences between the residential and commercial industries. Not only will the knowledge benefit you and make it easier to close these loans, it will benefit your borrowers as they navigate the process of obtaining a commercial mortgage.