Closing small-balance commercial mortgages is a simple way for brokers to earn more, and taking the time to learn about and understand the underwriting process will make it even simpler. Once you know what goes into underwriting a small-balance commercial mortgage, you’ll be able to provide your lenders will all of the necessary information in order to close these loans as quickly and smoothly as possible. Here are some of the various factors that affect the commercial mortgage underwriting process:
When submitting a small-balance commercial mortgage scenario, the more information you send to your lender, the better. Most lenders will need your borrower’s application to include a completed 1003, a recent credit report with scores and tradelines and a summary of the deal to get started. Without these items, the underwriting team will be unable to evaluate your borrower’s request, so make sure you have these documents.
Every lender has different requirements when it comes to the information they’ll need to fully underwrite your borrower’s small-balance commercial mortgage. Additional documentation might include tax returns to make sure your borrower has filed with the IRS, an agreement of sale if they’re looking to purchase a property or a rent roll if they rent out all or part of the building to tenants. Talk to your lender to get a better understanding of all the documentation they’ll need to fully underwrite the deal and get them that information as quickly as possible.
Determining the rate
Many factors go into determining the rate of your borrower’s small-balance commercial mortgage. Their credit history, especially how well they’ve met past financial obligations, and their experience in their business are two of the most important factors used to determine the risk of lending to a borrower and thus their rate. Make sure you understand this so you can explain if your borrower has any questions about their rate.
Determining the LTV
Like the rate, there’s a lot that goes into determining the loan-to-value (LTV) ratio, which dictates the maximum loan amount a lender can offer your borrower. The value of the property as determined by a commercial appraisal, the property type, where it’s located and how well the property debt services are all crucial factors in determining the loan amount for which your borrower can qualify.
Understanding the commercial mortgage underwriting process will help you to provide your lender with the information they need in a timely manner. Getting to know how your lenders underwrite deals will help you to submit more complete applications, which will in turn lead to faster closing and additional income earned.