Commercial mortgage loans

A commercial mortgage loan is utilized by businesses in order to obtain additional capital. It is different from other types of loans because the collateral is a real estate. However, not all real estate properties can be accepted as collateral. For example, residential homes cannot become collaterals for commercial mortgage loans. The real estate properties that are received as collaterals are commercial buildings and other properties of similar nature.

Aside from the limitations on the type of real estate that can be used as collateral, there are two other major identifying characteristics of commercial mortgage loans. First, it can be obtained by a business entity, and second, it is considered as “nonrecourse.” Since the purpose of commercial mortgage loans is to augment the capital of a business, it is not limited to sole proprietorship businesses in which the borrower is a person. The commercial mortgage loans can be acquired by a partnership, by a corporation, and by any other business entity. Due to this, the decision to approve a loan application will not depend on the credit rating of the businessmen but on the stability and capability of the business. The processing of commercial mortgage loan applications takes a relatively longer amount of time than person loans.

A nonrecourse loan is a secured loan in which the borrower is not personally liable for its payment. That is, if the loan could not be paid, the collateral is taken by the lender. In the case of commercial mortgage loans, the real estate property that was used as collateral will be possessed by the lender when the business entity could not make the agreed payments. The value of the real estate property, due to market forces will fluctuate or the value can go up or down. The lender, of course, will anticipate a slowdown in the real estate market and will approve loan applications that have the collateral’s value significantly higher than the proposed loan. This is called over-collateralization and the borrower stands to lose greater if the debt is not paid. A parallel setup can be found in second mortgage loans.

Commercial mortgage broker

The commercial mortgage broker is not just knowledgeable and skilled in dealing with residential mortgages. This person is also adept at handling commercial mortgages, which are loans secured against commercial real estate properties and released to business entities and not individuals. To be a successful commercial mortgage broker, a person must develop several sets of skills. One set of skill is the ability to differentiate one type loan from another. This includes knowledge about various loan programs such as escrow agreements, PMI, loan-to-value ratios, adjustable rate loans, and construction-permanent loans.

Another set of skills is the ability to explain and implement federal and state laws regarding mortgages and loans. This includes a solid background on concepts such as the Equal Credit Opportunity, the Fair Housing Law, the Truth-in-Lending Act, the RESPA and the FCRA. And still another set of skills is the ability to process the loan, which includes in-depth know-how of credit scoring, employment verification, action codes, red flags, appraisal reports, and refinancing worksheets.

And finally, it must not be forgotten that mortgage brokerage is a people-oriented service. The commercial mortgage broker must have excellent people skills. They should be able to explain clearly the real estate mortgage terms such as APRs and GFEs. They should also project enthusiasm and sincerity. And most important of all, they should show integrity and develop trust in their clients.