When it comes to real estate, the ways in which individuals purchase homes and the way people and businesses purchase property are not the same. The processes, terminology, and requirements are very different. The fact that one is a home purchase and one is a business purchase is obvious, but the nuances go much deeper, leaving many people to wonder what the biggest differences are between residential lending and commercial lending.
“CSS is experienced at vetting human capital in both the residential and commercial space. Our qualifying questions are modified for each client after we spend at least four hours absorbing the business model and culture at any client. Our partnership is further leveraged by a thorough understanding of what happens to a qualified candidate once presented and moving through the interview process at our client. Mortgage is one of four niches we focus on under the Professional Staffing umbrella,” says Lauren Behar, Sr Account Manager, Contemporary Staffing.
Sorting Through The Lending Jargon
The terminology and industry jargon associated with residential lending is limited, as residential loans are narrowly defined to include the financing of a mortgage or deed of trust for single family homes and multifamily dwellings of four or fewer units. Conversely, commercial lending includes every other kind of real estate classification, making it much more complex. It can cover land, income and investment properties, retail space, office space, professional space, and myriad other spaces.
Different Types of Lenders for Different Types of Commercial Loans
When someone wants to purchase a home, they go to a mortgage lender. When a person or entity wants to purchase property considered “commercial,” they typically seek out a lending company that has expertise in that particular type of property.
For example, commercial lenders may specialize in land, warehouse space, office space, residential income properties, retail space, industrial space, etc. Lenders specialize because capital sources for various types of commercial property, interest rates at different types of properties and the cash flow created by a property can vary wildly and have a significant impact on the profitability of the loan, which means different types of property loans must be analyzed in different ways.
Evaluating Residential vs. Commercial Loan Applications
In residential real estate, lenders have a fairly black-and-white set of criteria to draw from when evaluating loan applications. They look at down payment, gross income vs. debt and determine whether or not a borrower can afford to make the payments based on that criteria alone.
Commercial lenders, on the other hand, have to be able to determine the cash flow for a particular business and they must be able to accurately forecast how that business will thrive in a location before approving a loan. Therefore, many lenders prefer to lend to landlords who lease the property to individuals or businesses, which can make. Lenders can make far more accurate predictions when they know how much a landlord will be bringing in each month, versus the often-unpredictable nature of individual businesses, even if that business has a solid history.
Helping individuals and businesses navigate the real estate lending market requires talented financial professionals. If your bank, commercial real estate lending company, mortgage brokerage or investment firm is looking for talented financial pros to help you achieve your goals, or if you are a mortgage professional seeking new opportunities, contact the expert recruiters at Contemporary Staffing Solutions today.