commercial market’s income opportunities can be well worth your effort.
Closings
One recurring misconception among
residential mortgage professionals is
that a commercial property takes four to
six months to close, which is why many
of them shy away from the commercial
sector. The residential market generally
offers closings that take place in a matter
of weeks, not months.
Although any loan — commercial or
residential — can run into challenges
that extend the closing beyond the target date, many commercial transactions
close within 30 to 60 days. The reason it
takes longer is that commercial property
appraisals are much more complex than
their residential counter-parts, taking
into account not only area-comparable
sales but income valuations, as well as
possible environmental reports.
DSCR
Residential brokers looking to make the
leap also should familiarize themselves
continued on page 56 »
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with the concept of a property’s debt-service coverage ratio (DSCR). Unlike
residential properties, a commercial
property must meet DSCR requirements to qualify for funding.
DSCR is like debt-to-income requirements for residential loans, but more
complicated. It takes into account the
property’s income eligibility, including
expenses such as utilities, maintenance
and current interest costs. Although a
property may generate $500,000 of
revenue per year, all of the expenses
associated with that property must be
By Anita Huedepohl
Founder and CEO
Liberty Funding
Diving Into the Commercial Market
Moving from residential loans to commercial loans can be worth the effort
The epic real estate market crash of 2008 left many residential oan officers in search of fresh
opportunities. With a maze of red tape
now in place, it is more difficult than
ever to close residential transactions,
especially given the debt-to-income
and other regulatory limitations in
effect as of this past January.
In light of these circumstances, some
residential mortgage professionals
have been opting to pursue business
on the commercial side of the market.
Making the leap from residential loans
to commercial loans can initially be a
daunting experience, but the end result
is often worth the effort.
Although opportunities in the commercial mortgage sector are available to
residential professionals, they require
education to take proper advantage of.
The following differences between the
commercial market and the residential
market are critical to understand.
Compensation
At first, making the leap from residential
loans to commercial loans may seem
like a “no-brainer” way to earn more fee
income, considering the comparatively
large loan sizes of commercial proper-
ties. These typically are valued in the mil-
lions of dollars, much more than most
residential properties, which are usually
less than $1 million. Mortgage profes-
sionals should know, however, that this
difference doesn’t translate necessarily
to a huge increase in income.
Whereas residential loan officers typically charge their clients in the realm of
3 points, commercial clients generally
are charged 1 to 2 points, depending
on the complexity of the loan. Sometimes, the amount will be even less,
especially in cases of properties in excess of $10 million. These fees, although
not as tightly regulated as those of residential transactions, are regarded as
acceptable industry standards.
The moral of this story: Commercial
lending is not a “get rich quick” solution
to the mortgage-broker blues. Still, considering the loan amounts in question
and the number of available deals, the
Anita Huedepohl is the founder and CEO of
Liberty Funding, which has a focus on providing
nationwide commercial property financing.
With more than 10 years invested in the industry,
her company’s goal is to find equitable
solutions to meet borrowers’ requirements for
refinance and acquisition transactions from
$2 million to $20 million and more. Liberty
Funding’s website is libertynationwide.com.
Reach Huedepohl at (615) 417-4710 or
anita@libertynationwide.com.
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