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The Small-Balance Commercial Difference: You Can Earn More

Commercial Mortgage
Posted on 
July 25, 2017

Residential brokers looking to earn more and grow their business have a great option in small-balance commercial mortgages. Closing loans within this niche is simple, fast, and allows brokers to make more money while continuing to work with residential borrowers. However, it’s important to know the differences between residential and small-balance commercial mortgages.

Here’s what you can expect when working with small-balance commercial mortgages:

Higher rates:

When working with commercial mortgage borrowers, brokers should be prepared to sell a higher interest rate. This is doubly true for brokers working with non-bankable small business owners. If these commercial borrowers are expecting a residential interest rate, it’s going to be hard to sell the deal, so make sure that you prepare them for what to expect.

Fewer regulations:

The residential mortgage industry has strict guidelines in place, which generally means more documentation, a longer underwriting process and limits on what brokers can make. The small-balance commercial industry isn’t monitored as closely, which allows brokers to close more loans and earn more.

More expensive appraisals:

Because residential appraisals are generally simple in scope, they tend to be inexpensive. Commercial appraisals, however, vary greatly in terms of cost depending on the size of the property, as well as the location and type of building. Make sure your commercial borrower is prepared to pay a more expensive appraisal fee.

Shorter time frame:

Because of the regulations we’ve mentioned already, residential mortgages – and even commercial mortgages funded by traditional lenders – usually take a few months to close. By contrast, small-balance commercial mortgages are not heavily regulated and can close in a matter of weeks.

Higher commissions:

Because of fee caps, brokers can only earn so much when they close a residential loan. If you’re looking to earn more, small-balance commercial lenders generally allow larger commissions and some even let brokers charge yield spread premium.

Earning more with small-balance commercial mortgages is easy once brokers new to the industry know what to expect. As long as you and your borrowers are prepared for the differences between residential and commercial mortgages, getting these loans closed is an easy way to expand your business.


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