A look at 3 popular questions from originators looking to close small-balance commercial mortgages
Thinking about adding small-balance commercial mortgage lending to your business but unsure of where to start? You’re not alone.
Rising interest rates and a reduced number of home mortgage refinances in 2017 are leading residential originators across the country to develop new strategies to protect their bottom line this year. One popular strategy involves diversifying with small-balance commercial mortgages. Brokers are interested in these loans because they are quite similar to residential transactions in a number of ways and make for an easier transition into the commercial arena.
Silver Hill Funding runs monthly webinars on small-balance commercial mortgage topics, and over time we’ve received tons of questions from residential originators looking to break into commercial lending. Some of these questions involve specific loan scenarios or program details, but we’ve noticed that 7 questions seem to pop up over and over again.
I’ll answer 3 of those questions right now.
Question 1: Do I need to be licensed to close commercial deals?
Since all residential mortgage originators need to be licensed before they can do business in their state, many assume they will need to obtain a license to close commercial loans as well. But that isn’t always the case.
The truth is it isn’t always clear if a state requires a license in order to broker commercial loans, so we encourage brokers to either consult with their attorney or search the NMLS online database to determine whether or not a license is required to broker commercial loans in those states where they do business.
While the commercial mortgage industry is regulated more closely than it was in years past, brokers do enjoy the benefit of avoiding the TRID complications that affect business for residential originators. This benefit alone is enough for many brokers to cross over into the commercial side of the isle.
Question 2: What’s the first step to breaking into commercial mortgage lending?
Before you can start marketing your business and networking with referral sources, you need to get a lay of the land. Take some time to get to know the industry’s primary lender types and loan programs so you can quickly identify the best solution for clients once you begin taking on commercial deals.
Here are some of the lender types you should research first:
- Traditional Banks:
Banks offer attractive rates, but their credit requirements and underwriting protocols may make it difficult for many borrowers to secure funding – especially since small-balance commercial mortgage borrowers are often self-employed or serial investors who struggle to provide the type of documentation banks require.
- Agency Programs:
Agency programs like Fannie Mae and Freddie Mac are another good option for strong borrowers. Be sure to pay close attention to their requirements, since eligibility for these programs can be quite limited.
- Non-Bank Lenders:
Non-bank lenders are financial institutions that extend credit or loans to consumers or businesses who do not qualify for financing from traditional lenders. These lenders include marketplace options, conduits, life companies, and non-traditional lenders like Silver Hill Funding.
This segment obviously covers all sorts of rate ranges, program types, and loan amounts – you may find it helpful to think of the non-bank lending space as a spectrum, with the high-interest rate, hard money options on one end and the more exclusive lenders on the other. As an example, Silver Hill belongs somewhere in the middle of the spectrum.
Question 3: How can I compete with banks?
Sometimes residential brokers hesitate to launch their commercial business because they think they won’t be able to compete with bank loan officers. After all, those loan officers can offer the lowest rates and typically work for an organization with greater name recognition.
But brokers shouldn’t worry, because many borrowers in the small-balance commercial mortgage arena struggle to meet their bank’s eligibility requirements and have a pressing need for the kind of expertise a mortgage originator like you can provide. Borrowers often have a limited understanding of the commercial lending landscape – they may feel like their only option after a bank denial is their local hard money lender. You have an opportunity to be a solution provider by introducing them to a number of additional lender types that more closely match their specific needs.
That is one of the best parts about diversifying your business with commercial mortgages – not only will you establish an additional revenue stream for your business, but you’ll also make a real difference in the lives of small-business owners and investors who strengthen communities across the nation.
If you have a question about small-balance commercial mortgages, contact us today and get in touch with one of our experts.