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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2007

Commercial Applications: Step by Step

The commercial-application process differs from residential; here’s what you need to know

With the decline in home construction and sales in the single-family-housing market, many residential mortgage brokers are searching for information and instruction about originating and funding commercial mortgages.

It is difficult to originate any product when you do not understand the process. But if you understand the general application process and how it flows from origination to closing, you can be successful in the commercial mortgage business.

The more you can visualize yourself handling commercial loans, the quicker you will begin to see opportunities everywhere you turn.

The following steps give you an idea of how the process works:

  1. Get the word out. Let all your contacts and prospects know that you can handle their commercial loans, as well as their residential loan needs. Call potential referral sources, and advertise your commercial capability in the phone book, brochures, Web sites and newsletters.

  2. Get the borrower’s story and request documentation. When a commercial loan request comes your way, interview the borrower carefully to determine the story behind the request and whether it appears feasible.

  3. Schedule an appointment when the borrower has the documents together. E-mail the borrower a commercial application and include a checklist of the required supporting documentation. 

    When the borrower has gathered all the necessary documentation, schedule an appointment, preferably at the subject property. Collect the requested documents from the borrower and take photos of the site. Determine the loan amount needed and the feasibility based on loan to value using your best property-value estimate

  4. Do a pre-analysis. Carefully analyze the documentation to determine the borrower’s creditworthiness, and complete an initial write-up of your loan request.

  5. Select a lender. Select the lender based on the loan size, loan type, credit quality and whether the loan will be stated or full-documentation.

  6. Discuss the proposed loan with the lender. Once you have selected a lender, e-mail a write-up and discuss the loan request to determine the lender’s level of interest, available terms and pricing. Know the lender’s history. Ask for references and contact them.

  7. Submit the application package to the lender. Be sure to include documentation.

  8. Find out what additional documentation the lender needs. The lender will determine, based on the documentation it receives, if any additional paperwork is necessary before proceeding. The lender also should also confirm the possible terms and pricing discussed in step No. 6.

  9. Notify the borrower of the proposed terms. Contact the borrower to discuss the lender’s proposed terms and the additional documentation being requested. Be prepared to renegotiate with the lender.

  10. Get the conditional commitment from the lender. After reviewing the additional documentation, if it is acceptable, the lender will issue a conditional commitment (or equivalent) that outlines the proposed terms, pricing and conditions. It will need to be signed and returned by the borrower with an advance fee for third-party reports.

  11. Collect a commitment fee and signed conditional commitment. Review and discuss the conditional commitment with the borrower. If agreed, collect the advance fee. Then forward the commitment fee to the lender along with the signed conditional commitment.

  12. The lender sends the completed application package and appraisal to its credit committee. When it receives the commitment fee and conditional commitment, the lender will order the property appraisal and other third-party reports. It also will submit the application to its credit committee for approval subject to any additional documentation and third-party reports required, such as surveys and environmental reports.

  13. Get the loan decision. If the lender denies the loan, it will sometimes refund the commitment minus any third-party expenses such as appraisal costs. This should be discussed before the fee is paid, however. If the borrower agrees, resubmit the loan package to another lender.

If the lender approves the loan, it will issue and coordinate closing instructions with input from all involved parties. Obtain a copy of proposed settlement statement for review before closing.

Always attend the closing and ensure that all questions are answered. Anything can happen, and you should be present to protect the borrower’s interests.


 


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