By: Alejandra Torres
Diversification. You likely hear the term every time interest rates increase and the residential market shifts. Or perhaps you’ve read articles on the subject or discussed its pros and cons with your peers at a local mortgage exhibition. Whatever the case, you’re probably thinking:
Should I diversify my residential mortgage business with commercial loans?
While you may have had your reasons not to in the past—rates are low, business is booming, and hello, there’s no time to learn about another type of mortgage solution!—now is the time to reconsider, because rates are slowly creeping up again and a larger number of mortgage pros are fighting for a shrinking number of deals. So the question again is:
Should I diversify my residential mortgage business with commercial loans?
Here are three main reasons why expanding your product set to include commercial loans makes sense today, as well as next steps you can take to help get you started on your commercial journey.
Reason 1: The Residential Market is Changing
Sure, business is still good. But with rates expected to continue inching up, the refinance opportunities that originators have depended on will start to disappear.
Experienced mortgage pros know that markets are cyclical and that any growth strategy based purely on pricing is doomed to fail in the long run.
Still, rates have been so low for so long that many industry players have built their whole business on home refinances. More agility and a focus on – there’s that word again – diversification– is needed in a rising interest rate environment.
Of course, a shrinking refi market means that a large number of originators are going to be hunting for the same purchase deals. Speaking of which…
Reason 2: Competition is Increasing
A mass of industry players (some of which are far better funded than others) competing for the same purchase business is scary enough. But what if the purchase market were slowing as well?
Redfin recently reported that September 2021 marked the 5th consecutive month of declines in bidding wars on homes. Home offers facing competition on their platform dropped by 15% from the peak rate earlier this spring.
Competition is expensive. If you’re not willing to blow up your advertising budget and take time away from your pipeline to spend a significant amount of time prospecting, you may find it difficult to win new business.
On the other hand, you could always try zigging while others zag. Adding commercial solutions to your product set will open new doors and opportunities. And the best part? You will no doubt find less competition in the small-balance commercial space. There are fewer brokers to compete with on a large number of purchase and refinance opportunities.
Reason 3: New Clients = More Business
Specializing in one area has its benefits—you can become an expert on a specific loan product and gain your clients’ trust when it’s time to close that type of deal. However, having more than one specialty is truly game changing for professionals who want to get ahead of the competition.
It’s rare to see brokers acting as a one-stop shop solution provider in the mortgage industry, but having this ability will help you attract more types of borrowers. You can also help the same borrower in multiple ways – just think of the small business owner who needs help purchasing a new home and refinancing the loan they have on their retail shop.
MORE: 5 Simple Ways to Improve Communication with Clients
How to Get Started
The good news is it’s easier than you think to delve into the commercial mortgage market. For one, depending on where you practice, you may not need additional licensing to start closing deals.
The best way to be sure is to check the NMLS website and confirm whether or not you need a commercial mortgage license in your state.
Below are three entry points you can target to start earning additional income faster:
Tip 1: Partner with the Right Lender
Residential brokers usually have a list of lender partners they go to for different loan scenarios. It’s crucial to do the same for your commercial business and build out your lender relationships. Only then can you be certain you’re getting your clients the best possible deals.
Alternatively, you could work with a lender that offers everything you need, all in one place. When you partner with the Silver Hill Wholesale Network, you can close both residential and commercial loans without needing separate broker approvals. You can take the first step with us here.
Tip 2: Understand Underwriting
Whether you’re closing on homes or businesses, the trick to having a smooth lending experience is knowing the guidelines and requirements that will get your client’s deal to the finish line.
Be sure to connect with your partner to get an updated view of their current guidelines. Then discuss with your borrower which solution makes the most sense for them. Borrowers with strong credit and straightforward financing needs may qualify for bank financing. Those with credit issues or documentation concerns may need an alternative solution.
Successful originators are the ones who can determine when a non-bank lender is the best fit for a strong borrower. Oftentimes, the decision comes down to the amount of tax return documentation the borrower is comfortable submitting and their purpose for the loan (think: cash-out refinance).
The more you know about your mortgage partner and your client, the better your chances are at getting your deals closed.
Tip 3: Get Social
It’s a fact that mortgage pros who grow their digital footprint are more likely to attract new and existing customers. By having an online presence and showing your past success stories, borrowers will want to partner with you for all their mortgage needs.
Our suggestion? Ask if your lender provides unbranded marketing collateral. Some often have a marketing kit that includes brochures, social graphics, and flyers. Getting your hands on this will help kick start your digital marketing plan.
WATCH: Your Agency Investor & Non QM Playbook: A Silver Hill Wholesale Network Webinar
Final Thoughts
The commercial mortgage market is brimming with opportunities. Take advantage now and you’ll be on your way to generating more business and income while becoming a better solution provider for your clients.
Ready to get started? You can get approved today with the Silver Hill Wholesale Network. Just drop us your details here and someone from our team will get back to you soon. You can also learn about our full suite of residential and commercial mortgage solutions here.
