How can I tell the difference between a commercial and consumer mortgage?

Question: What is the difference between a commercial and consumer mortgage loan?

Answer: A commercial mortgage – also known as a commercial loan – is a different category of mortgage governed by California law and practice than a consumer mortgage governed by Federal law, which is different. based on the use of money and the property securing the mortgage.

A consumer mortgage a loan secured by a one-to-four-unit residential property acquired and made specifically for the financing of a:

  • specific;
  • family; or
  • family use. (12 Code of Federal Regulations §1026.2)

In addition to consumer mortgages, commercial mortgage made for others instead of being used by the individual, family or household and established by any real estate type, including a one-to-four-unit residential lot.

Commercial mortgages are not regulated by federal law except for honoring the verse. (12 United States Code §1701j-3(e))

MLB originates from commercial mortgages

A Department of Real Estate (DRE)-licensed broker and their agents and a mortgage origination loan (MLO) proof that commercial mortgages and commercial mortgages can be negotiated. (See RPI writing: Mortgage Loans and Credit: Chapter 40)

So, i Californiaa licensed DRE company that holds an MLO endorsement has the authority to offer the services of a commercial mortgage loan (MLB) possible origin there are two consumer and business mortgages. This authority arranges and receives a fee for all types of mortgage financing directly or indirectly secured by any type of real estate and borrowing for any expected to allow MLB to continue to receive income from a variety of sources if the original mortgages were small – in other words, proof of wealth.

However, an MLB that limits their practice to making or arranging commercial mortgages – not consumer mortgages – is no MLO confirmation required. (Calif. Business & Professions Code §10166.01(b)(1); §10131(d))

An MLB, with or without MLO certification, may:

  • in order a commercial mortgage, negotiating terms on behalf of an investor and the person financing the mortgage, usually an individual, individual retirement account (IRA), pension fund or a small local bank;
  • origin a business mortgage using their own funds; and
  • work like that stock exchange to negotiate the sale or purchase of a trust bond for themselves or a client.

Commercial mortgages and other non-consumer mortgage transactions include plans such as:

  • represent hard money or private loans to finance commercial sector mortgages;
  • dependent mortgages (MBLs) – when a certificate of trust is assigned as security, but not the direct property;
  • refund; and
  • digital investments other than commercial mortgages.

When originating a commercial mortgage, MLB may also be employed by the lender to act as a service agent or contract collection agent on the mortgage for an additional fee. (Pass & PC §10233)

Related articles:

MLO Financing Guide Part 4: Arranging Mortgage Loans for Investors

An example

Consider a buyer who hires a real estate agent to find a single-family residence (SFR) to own and operate as a investment property for income.

The buyer agrees to pay an additional fee to the broker to arrange a mortgage to finance the purchase of the investment property.

The broker finds a suitable SFR property with a mortgage, and a deal is closed. The entrepreneur is paid for both activities. The buyer pays the price at the time of purchase; the buyer pays the mortgage origination fee. And as always, the amount of fees is reflected in the seller-customer.

Based on this transaction, is it a business or a consumer mortgage?

What up commercial mortgage. While the SFR property is a home, the buyer used the mortgage proceeds for a business purpose, not for sale purposes. Buyers must be mortgaged two:

  • money a sales purpose, such as the buyer using the acquired SFR as a home for his family, and
  • be secure through the house bought with mortgage money.

Therefore, the mortgage in this case is a commercial purpose mortgage because the funds are used for investment purposes, not for personal use, and do not trigger MLO license requirements to allow the entrepreneur to start then get a bill.

Have a question for our editorial department? Send us an email at and your question may appear in our next letter to the editor!

Leave a Comment