Small Commercial Mortgage Options

Commercial, multi-unit residential, and mixed-use (commercial and residential) mortgage applications result in a few surprises for mortgage brokers who don't typically tackle these types of loans. There are a few subtle differences that you need to educate your customers on if this is their first foray into this property segment. Successful brokers do many things well - and one of them is setting and meeting customer expectations. Use the below to manage customer expectations and increase your odds of success!

Subtle Differences

1. The first item on the list is turn-around time for an approval. If clients are used to getting a residential mortgage commitment in less than a day you need to let them know that a commercial commitment may take 1-2 weeks. In most cases, you'll receive a Letter of Intent/Interest in the first 2 weeks, followed by a commitment letter when all conditions have been met.
2. Up front fees. Once you obtain a (or multiple) letter of interest the lender will need your client to sign back the letter and provide a non-refundable fee. I've seen the fees run anywhere from $1000-17,000, based on the loan amount, property type and the lender;
3. Higher fees. If your borrowers are used to paying $400 for a home inspection and a similar amount for property appraisal, be sure to advise them that these fees typically run above $1200++ each and have everything to do with the location, property type, estimated market value, environment assessment level and many other factors.
4. Turn-around time for related professional services are longer. Legals, property inspections, and appraisals typically take 2-4 weeks to complete, depending on the complexity of the appraisal, location, and time of year. If you see a five-day appraisal or inspection condition in the agreement of purchase and sale, be sure to get that changed as soon as possible. Three weeks is standard in the industry, although I've seen these done in as little as a week, and as much as 8 weeks.
5. The loan-to-value ratio may be lower for a commercial mortgage, meaning less of the total value of the property is covered by the loan. The interest rate on a commercial mortgage is higher than on a residential mortgage. Commercial mortgages are usually amortized over a period of 20 years or more and repaid in regular installments.

Know Your Lenders

It's important to do a little reading on the subject before you entertain this type of mortgage application. There are a few lenders who can help you get these deals done. First National, Community Trust, Haventree, Home Trust, and B2B all have programs for small commercial mortgages. Start there and grow your lender stable as this segment of your business grows!

Value Connect has you Covered

It's challenging to find a good commercial appraiser if you generally don't work on commercial and mixed-use mortgage applications. We highly recommend you engage with a company that has a strong and reliable group of AACI and DAC designated appraiser partners who can complete these reports for you and your lenders. Get started on that part of the process early so that you can meet the deadlines established in the purchase agreement (or by the borrower in the case of a refinance).  We're happy to connect you with experienced appraisers to give you a head start, no matter which part of the country your deal is located.

Benefits of Getting the Reports Ordered Early

There are several benefits of ordering your appraisal and inspection reports early. Besides knowing what you are"playing with," your borrower will be more likely to follow through if they have skin in the game. It also gives you a chance to talk with the professionals completing work for your client to ensure your questions are answered and you can update your lender(s) or send the application to a different lender that can accommodate the application.

Like so many things in life, success is predicated on preparation. Be prepared to handle small commercial mortgage applications so you can get them funded efficiently and effectively. You'll increase your revenue and have more satisfied/happy clients as a result.