For residential mortgage brokers, the small-balance commercial mortgage industry can seem intimidating at first glance. However, closing these deals is a simple way to strengthen your pipeline, close more deals, and increase your income.
So, how do small-balance commercial mortgage differ from the residential deals you already close?
If you’re a broker who typically closes residential mortgages, you know how much paperwork goes into your borrower’s application. The process for a small-balance commercial mortgage is generally much simpler and less time consuming. To review a scenario, most lenders only need a completed 1003 or commercial application, a recent credit report with scores and tradelines for each borrower, a summary of the deal including how your borrower plans to use the money, and, ideally, recent photos of the commercial property.
Residential mortgages are subject to stricter guidelines and more regulation than commercial mortgages. This means more documentation, tighter credit parameters and more time spent on each deal. If you choose to work with borrowers seeking alternative commercial financing, you’ll find that the lenders who close the deals have much more flexible guidelines and underwrite each deal on a case by case basis. This allows for creative financing solutions and more closed deals.
While residential mortgages certainly can close quickly, it’s not uncommon for the tighter regulations to lead to more time spent working on each deal and delayed closings. Because of their flexibility, small-balance commercial mortgage lenders can generally close deals quickly, meaning you get your commission check that much sooner. For example, APEX typically closes deals about 2-3 weeks from the time a commitment letter is issued.
Because of the regulations that govern the residential mortgage industry, broker fees are capped at a fairly low percentage. Brokers who work with alternative commercial lenders can still expect a fee cap, but they tend to be quite a bit higher than what can be charged on a residential deal. For example, APEX allows brokers to charge 5 points up front, as well as an additional 2 YSP on most deals.
Small-balance commercial mortgages are an easy way to increase your business and earn more, and you already have the necessary skills to get these deals done. The application process is simple, the underwriting is flexible, the deals close fast and the commission fees are higher. As long as you’re working with the right alternative commercial mortgage lenders, working on these deals is a great opportunity for residential brokers.