As a commercial mortgage broker, it’s important for you to understand the types of loans available to your borrowers and for which each borrower is going to be able to qualify. A firm grasp of your borrower’s financial situation will allow you to determine if they’re likely to qualify for a conforming commercial mortgage or if they’ll need to seek out non-conforming financing.
Here’s how to tell the difference between a conforming mortgage and a non-conforming mortgage:
Conforming Commercial Mortgages
A Conforming Mortgage meets a particular set of guidelines set by either GSEs Fannie Mae and Freddie Mac or banks. These loans are particularly attractive to borrowers since they boast lower interest rates, but qualifying for them can be a challenge for some. The loan size the borrower is requesting, the borrower’s credit history, total debt, ability to provide complete documentation and debt-to-income ratio all affect their ability to qualify for a conforming commercial mortgage.
Non-Conforming Commercial Mortgages
A Non-Conforming Mortgage does not meet the lending guidelines set by GSEs or banks. Borrowers with past credit issues, sizeable tax liens and other types of debt, unusual or small commercial properties and those unable to provide the approved documentation regarding their financial situation will be unable to obtain conforming mortgages. Non-conforming commercial lenders are able to meet the needs of these borrowers with more flexible underwriting standards, but do charge higher interest rates.
In order to properly place a commercial mortgage request and provide the financing options that best suit your borrowers’ needs, you’ll need to understand the types of commercial mortgages for which they can qualify. If you choose to work with small-business owners, getting acquainted with non-conforming commercial mortgages and the lenders who offer them is a great way to close more loans and earn additional income.