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Borrowers also actually pay for the report on behalf of the lender. The lender then owns the report. Commercial lenders typically obtain a good-faith deposit or registration fee from borrowers; this good-faith deposit includes third-party-report costs that the lender incurs. In some cases, the lender does not release the report even after closing.
RESPA and Home Mortgage Disclosure Act regulations do not apply to commercial loans, with the exception of Federal Housing Administration multifamily loans. In fact, in many states you do not even need a license to broker commercial loans. Although you are not required by law to document all conversations and provide a good-faith estimate on commercial transactions, it is always to the borrower's benefit, as well as your company's, to document and disclose as much as possible to avoid future misunderstandings and lost deals.
Because commercial lenders are not regulated by RESPA, you can refer your commercial loan to another lender and receive a referral fee.
Reports and closing costs
Credit reports and title commitments also are ordered in commercial transactions. But other reports, such as environmental reports or property inspections, also come into play. Their biggest difference is that they can take longer to put together than their residential counterparts.
Closing costs typically are much larger for commercial loans. An appraisal can run $3,000 or more. Escrow charges are higher. One-point origination fees, when calculated against loan amounts in the millions, are much higher, too. Commercial loans typically have some type of prepayment penalty.
Like residential programs, commercial lending has made great strides in offering niche products, even stated and no-income/no-asset loans or loans for investors with below-average credit scores.
Loans are available for purchases, rate-term refinances, cash-out refinances, construction, bridge, mezzanine and more. But commercial lending does not yet offer loan-to-value ratios (LTVs) of more than 90 percent (many go to 80 percent at best). Further, commercial lending typically does not offer lender-based second mortgages. Some commercial lenders will allow seller-financed second mortgages. Regardless of how much your borrower puts down, there is no private mortgage insurance for commercial loans.
Remember that although you can usually get creative with structuring first liens, second liens and down payments, commercial loans typically determine LTV by the property type, not the borrower.
What's in it for you?
It's about money.
One-point origination on a $200,000 home loan is $2,000. One-point origination on a $5 million apartment complex is $50,000.
Commercial deals are like closing two residential transactions at the same time. You will devote a few more weeks to customer service and follow-up, crunch more numbers the old-fashioned way, learn a few more formulas and gather more paperwork. Would that extra effort be worth the extra $48,000?
Although you must be the go-to person for each aspect of a residential deal, some commercial lenders will allow you to refer your loan to them. This allows you to work on other loans while they do the legwork and pay you a referral fee for your business.
Part of becoming an expert in your field is learning something new every day. As a reputable broker, you are always becoming better at your craft. Learning to broker commercial loans isn't much different, but the payoff is quite substantial, in both commissions and the ability to open your doors much wider.
Kim Daugherty is a wholesale account executive (eastern United States) for KC Capital, a commercial lender specializing in mid-range to smaller multifamily and commercial properties nationwide. She has been with KC Capital
for more than eight years and has been instrumental in closing hundreds of commercial transactions. She can be reached at (512) 794-1999, ext. 201, or email@example.com. More information is available on the company's Web site at www.kccapital.com.
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