If you’re a novice commercial mortgage broker or a residential broker crossing over into the commercial world, it is important for you to understand the differences in the fees and costs associated with these types of loans before you begin to sell them to your client. LTV and pricing will probably be the two most difficult hurdles to overcome in adjusting to the commercial loan process.
The LTV on a commercial loan is going to be a maximum of 70 percent. The rate and the LTV are where your knowledge of a product and your ability to sell will come into play. In most cases, a commercial loan is going to be riskier, and this is why most commercial lenders will never lend more then 70 percent. If you are looking for a higher LTV, you’ll need to find a hard money lender.
Closing costs for residential loans are usually somewhere around $7,000, whereas costs for commercial loans usually fall between $7,000 and $10,000, depending on the property. Keep in mind that most of the costs are outside fees, and that when you’re dealing with commercial properties the fees will be higher. Also, a broker can charge up to five points on a commercial loan.
In terms of paperwork, most commercial lenders only need to see a 1003, credit, pictures, and the reason for loan to decide whether or not they’d like to proceed. Once the deal is approved, some additional things that will be required are tax returns, proof of funds, if needed, and payoff statement. Time from approval to closing is about two to three weeks at APEX Mortgage Corp., a good deal shorter than the 30 days that a residential loan will take to close.
Understanding the differences between commercial and residential loans will allow you to be more self-assured when you present a loan offer to your client and that will provide them with the confidence to move forward with the application and the commercial loan process.
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