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Credit and Lending

Why This Blog? 

Hi, my name is Harry Panosian, and I have been in the mortgage business for over 25 years. I worked for a mortgage banking firm early in my mortgage banking career. Since 2002 I’ve owned Blake Mortgage, NMLS ID 150459, an Arizona-licensed mortgage broker specializing in residential mortgages. 

I’ve always wanted to write a book on mortgage finance but have yet to set aside the time to do it. I wanted to write this book to teach people what I learned while originating loans. Throughout my career, I’ve realized that ordinary and extraordinary people struggled with the process. What’s scary is that most consumers need to understand how they arrive at an interest rate and fees to which they agree to pay for the loan term. 

Even the most sophisticated borrowers need help understanding how to price a loan so that they are paying the lowest given rate with the lowest offered fees at the time the loan funds. Rates and fees are a market function, and that cycle has to follow the consumers buying or refinancing cycle. If interest rates are on an upward trend, it will naturally cost more to borrow money, and if they are on a declining trend, it will cost less. Of course, that’s oversimplifying it, but it is one of the many factors discussed in the following blog series.

This Blog series aims to teach you a shortcut to an outcome. What do I mean by that? This course will not make you an expert in mortgages, nor make you a loan officer for which you need a license to practice, but it will teach you step-by-step how to shop for the cheapest fees and the lowest rate for your given mortgage transaction. What I’m about to share with you is not rocket science, but you need to do a teeny-weeny bit of homework, which will save you tens of thousands of dollars throughout the term of your loan. 

The Internet has millions of pages about rates, fees, loan programs, etc. Still, none shows the industry insider knowledge you need to get the lowest interest rate with the lowest costs on your next mortgage. When you complete this shortcut to an outcome, you will keep more of your hard-earned money in your pocket and not give it to the bank. 

Harry Blake Panosian 

Harry Blake Panosian


Please remember that this blog should not be considered legal or tax advice. Please consult your attorney or CPA for tax and legal advice.

The discussed laws and principles are as they apply in the state of Arizona only. However, you could use rate and fee shopping techniques discussed in any jurisdiction subject to federal banking laws, the Dodd-Frank Act, the CFPB, RESPA, the “Truth in Lending Act,” and other applicable laws. 


Before you start shopping for a mortgage or, better yet, before you even call the realtor, please go to this URL www.annualcreditreport.com and get a free copy of your credit report. The government allows you an annual retrieval of your credit report, giving you a snapshot of your credit profile for your entire life. 

Remember, don’t call the realtor. Stay out of the Internet looking for a mortgage broker. Do this first. 

The second step is to review your credit and ensure that your information is accurate and that your credit balances are correct. Look for inconsistencies, late payments, charge-offs, liens, and other irregularities. With clear credit, sufficient income, and assets to cover your debt-to-income ratio, and you have the required down payment, you will get a mortgage.  

You have work to do if you have any late payments, incorrect credit balances, bankruptcies, charge-offs, medical collections, and tax liens which are notorious for ruining credit reports. 

I can share an anecdote about a doctor whose own practice had submitted an unpaid balance on a medical insurance claim to a collection agency. It was the doctor’s practice turning him into the collection agency. He still needed to learn that the insurance company had yet to pay a hundred percent of the claim. People sometimes forget that just because you have health insurance, the insurance company will cover the billed items from the hospital or doctor. In reality, the insurance company may only pay a portion, and some of that bill may be your responsibility, which people tend to ignore. Then months go by until they discover a medical collection has been charged-off and credit ruined. 

Credit Bureaus  

Three credit bureaus are repositories of your financial DNA. They are:  

a. Experian  

b. Equifax   

c. Trans Union  

These three credit bureaus receive your payment history monthly from most of your creditors. Each creditor may have their reporting timetable, but they report to the repositories each month. 

If you notice, I said “most “of your creditors and not all of your creditors. The reason is some creditors choose not to report to avoid competing creditors from raiding their accounts with new offers. It is especially true for creditors with higher rates than the market, who want to keep those accounts from competing offers with lower interest rates. 

To stay on top of your credit, you should sign up with one of the credit bureaus mentioned above for monthly reporting of your credit profile. This service is free if you sign up with one credit bureau. They will try to upsell you to sign up for all three bureaus, which will set you back, usually by thirty dollars or more. You do not need to do this. Just sign up for the free one. 

In addition to the credit bureaus, there are credit reporting agencies which number in the hundreds, that provide the tri-merge credit report that most lenders require, which shows all of your credit scores from the three repositories. More on that later. 

As I mentioned, if you have any dings on your credit, such as late payments collections, charge-offs, bankruptcies, repossessions, short sales, foreclosures, etc., you need to address them individually. There’s nothing you can do about late payments other than make sure that they reflect the true nature of the delinquency. Time will heal them, and it depends on the type of debt. Mortgage late payments are a big no-no. That is supposed to be your most important obligation, and lenders frown upon that. Different guidelines apply depending on the mortgage loan you are trying to get. However, that is one of the more severe delinquencies you could have. Government programs are generally more forgiving on credit dings than other conventional financings. 

If there are any open collections on your credit report, it behooves you to contact the collection agency, and you can usually negotiate a lower settlement than what’s outstanding. However, the longer the collection stays “open, “the more impact it will have on lowering your credit score. 

During the great recession, which we’ll discuss in detail later, there were a lot of foreclosures. “Short sales” were not even invented then. Government-sponsored agencies that securitize many conforming loans relaxed some of the restrictions governing these loans, but there is still a “Seasoning “requirement on these events. 

Identity Theft & Credit Freeze  

Not a day goes by that you don’t hear about somebody’s identity being “stolen” and their lives ruined. Or worse. You hear about some hacker from a remote location hacking into a large corporation’s database and stealing personal data, including Social Security numbers, dates of birth, home addresses, income information, etc. 

Cybersecurity experts continuously remind us to protect our online access with sophisticated passwords and change them regularly to stay ahead of the hacker’s reach. It is a cumbersome process. Yet necessary. Identity theft protection will not guarantee against hacker intrusion. If you want to avoid this type of violation against you, it’s best to have your credit frozen at each of the three credit bureaus. It can make things a little bit more difficult for you, but if you do not need an immediate loan, you could always unfreeze your account, and once you complete the transaction, you can “Freeze” your credit again. 

If you put a credit “freeze” on your account and apply for credit, lenders will contact you for permission to do what they need. 

FICO & Credit Scoring 

Watch this video: 


Credit scoring is a numerical representation of your credit habits. It considers available credit at your disposal, the amount utilized, payment and length of history, the number of recent inquiries, and new and open accounts — other factors include derogatory items that we discussed earlier. 

Since there are three separate credit repositories, each provides its credit scores. Most lenders use the middle number of the three to represent your overall credit. 

Your credit scores will determine what loan programs may be available to you. The higher your credit score, the more liberal your lending terms will be. FICO scores range from a low of 300 to a high of 850. Most lending programs will not lend on scores below 620. There are, however, exceptions to this rule, as nonconventional lenders may lend on scores as low as 500. But the rates on these types of loans that are considered subprime loans will be prohibitive, and the down payment requirement will be a lot more than conventional loans. 

What if you do not have a credit score or any conventional credit? Some programs will use nonconventional credit, such as your monthly rent payments, utility payments, etc., to underwrite your file manually, but that is beyond the scope of our conversation here. 

Just remember to maintain good credit habits by paying your bills on time, making prudent decisions with your use of credit, and refraining from opening those tempting department store and hardware store offers to open new credit in return for a discount on your purchase at the store, may hurt you on the long run. 

Credit Lates & Foreclosures 

In a deed of trust state like Arizona, generally, once you are 90 days late, the lender will commence the foreclosure process with a “NOD” or a “Notice of Default.” A “NOD” means you will get a letter from the lender citing a notice of default, threatening to auction your home at a public sale on the courthouse steps. The late fees will start mounting, and legal fees will soon ensue if you cannot bring the current loan. Finally, the foreclosure process will begin.

In non-deed of trust states, the process is different and usually takes a more extended period, as foreclosure is a judicial process. It means that it will go through the courts until you settle. 

You want to avoid foreclosure at all costs. 

The great recession in 2008 brought a slew of foreclosures, short sales, and bankruptcies. It reached unheard-of levels as homeowners could not keep up with their mortgage payments. As a result, their property values severely declined, consumers lost jobs, and many properties had encumbrances greater than their appraised values. As a result, consumers unable to sell abandoned these properties, and lenders began foreclosing on them. This chain of events had a tremendous impact on the real estate market for years.  

Recovery was slow. The foreclosure and short sale effects on credit scores were severe. Consumers who were once homeowners were now paying rent. For a borrower to qualify for a conventional mortgage, lenders generally require seven years of seasoning for foreclosures. Since this catastrophe, lenders have eased up on the seasoning requirements for foreclosures and short sales. At this writing, the seasoning requirement on a Fannie Mae and Freddie Mac loan for “Foreclosure” and “Short sale” is generally four years. Please check with your lender for the specific seasoning requirements. Typically, federally insured and guaranteed loans such as FHA and VA have a more liberal seasoning requirement. 

A chapter 7 bankruptcy also has a four-year requirement, and lenders frown upon borrowers who have Any credit dings post-bankruptcy. 

These seasoning requirements are continually changing depending on market conditions. It used to be that all short sales and foreclosure seasoning was seven years. 

Short Sales  

The “short sale” came into vogue with the advent of the great recession. The overwhelming number of foreclosures was causing an oversupply of inventory. Lenders came up with a solution: the Short Sale. By working with homeowners who had lost their jobs and could no longer afford their mortgage payments, the short sale provided them with a more graceful exit. It made those properties available for purchase by other borrowers. The process usually took 6 to 12 months, and realtors started specializing in short-sale property. The Short Sale solution eased the oversupply of inventory in the marketplace, and it was the beginning of the recovery in the housing market. 

Even though the short sale alleviated the oversupply in inventory, the impact on credit scores was severe. However, As the market recovered, Fannie Mae and Freddie Mac were more lenient on consumers with short sales instead of “foreclosures.” This distinction would help borrowers later as they tried to get new mortgages as the seasoning requirement was different for foreclosures versus short sales. 


There are three types of bankruptcies:  

 Chapter 7, Chapter 11, and Chapter 13 

Generally, getting a conventional loan will be challenging if you have any bankruptcy that is still in process.  

Once you have established credit after bankruptcy and do not have any derogatory credit, post a specific “Seasoning” period, you will most likely be able to get a conventional loan if all other underwriting criteria are met, such as income, assets, employment, and down payment.

Government programs have more liberal seasoning requirements than conventional loans. Check with your loan officer to see the applicable seasoning for the given loan program. 

Some programs out there charge very high fees and interest rates that will finance borrowers with more recent bankruptcies; however, they require large down payments. Therefore, I suggest scrutinizing these programs before originating such a loan. 

Credit Rescoring  

Credit rescoring occurs when a borrower is a few points shy of a target credit score, and they pay down some debt and get their rescoring entity to do a simulation that will, in most cases, bring up the credit score for a borrower to qualify for a given loan. 


You have to pay tax and mechanic’s liens before or at funding; otherwise, you will not be able to get the loan. These liens take precedence over a first mortgage; therefore, the lender will not fund the loan when these liens are present. 

Furthermore, even if paid off, a federal tax lien may disqualify a borrower because the lender will most likely require additional information for the delinquency. 

Credit Inquiries  

Inquiries constitute 15% of your credit score. Therefore, repeated queries to open new accounts, especially in the last 24 months, may hurt your overall score. 

Applicants are always concerned that a credit inquiry will impact their scores adversely, especially when applying for a mortgage loan if various lenders pull their scores repeatedly. In addition, consumer credit inquiries from online retailers and many others will also impact the score.

The best way to avoid this would be to do your homework ahead of time with annual credit report.com and be confident of your score. 

 Borrower’s History  

Your credit report also includes the following:

  • Your employment history.
  • Residential history.
  • Any variations of your name.
  • Phone number.
  • Date of birth.
  • Any tax lien.
  • Bankruptcy.
  • Other types of delinquencies. 

Be aware that the consumer credit act compels creditors to remove derogatory credit from your credit report over seven years old. Some exceptions apply here. Please check out the link below for more information on the consumer-credit-protection-act.


How to Shop for A Mortgage

Shopping for a mortgage can be daunting, but it’s essential to securing a home loan that fits your needs and budget. The Consumer Financial Protection Bureau (CFPB) has created a “Home Loan Toolkit” to help you navigate the process. This guide will break down the critical steps in the shopping process, including understanding the different types of mortgages, comparing offers from multiple lenders, and negotiating the terms of your loan.

Step 1: Understand the Different Types of Mortgages

Before you start shopping for a mortgage, you must understand the different types of mortgages available. The most common types of mortgages are:

  • Fixed-rate mortgages: These mortgages have a fixed interest rate for the life of the loan, typically 15 or 30 years. Your monthly payment stays the same throughout the loan term, making budgeting easier.
  • Adjustable-rate mortgages (ARMs): These mortgages have a variable interest rate that changes over time. ARMs usually have a lower initial rate than fixed-rate mortgages, but your monthly payment can increase or decrease based on market conditions.
  • Government-backed mortgages: FHA, VA, and USDA loans are insured by the government and often have more flexible credit and income requirements but may require mortgage insurance.

Once you understand the different types of mortgages, you can start to determine which type of loan is best for you based on your financial situation and long-term goals.

Step 2: Compare Offers from Multiple Lenders

When shopping for a mortgage, comparing offers from multiple lenders is essential to find the best deal. Here are the key factors to consider when comparing offers:

  • Interest rate: The annual percentage rate (APR) your loan charges. A lower interest rate means you’ll pay less in interest over the life of your loan.
  • Points and fees: Lenders may charge points and fees, upfront costs added to your loan. Comparing these costs between lenders ensures you get the best deal.
  • Loan term: This is the length of time you have to repay your loan. A longer loan term may result in a lower monthly payment, but you’ll pay more in interest over the life of the loan.
  • Closing costs: These are the costs of closing your loan, such as appraisal, title insurance, and attorney fees. Comparing closing costs between lenders is essential to ensure you’re not overpaying.

When comparing offers, request a Loan Estimate from each lender. This document outlines the terms of your loan and provides an itemized list of all costs associated with the loan. Use this document to compare offers and negotiate with lenders.

Step 3: Negotiate the Terms of Your Loan

Once you’ve compared offers and selected a lender, it’s time to negotiate the terms of your loan. Here are some key factors to consider when negotiating:

  • Interest rate: You can negotiate a lower interest rate with good credit and a solid financial history. Be sure to provide documentation of your financial history to support your request.
  • Points and fees: You can negotiate lower points and fees.
  • Loan term: If you’re struggling to make the monthly payment on a 15-year fixed-rate mortgage, you can negotiate a longer loan term to reduce your monthly payment.
  • Closing costs: You can negotiate lower closing costs by shopping around for services or asking the seller to pay some of the costs.

It’s important to remember that not all lenders are willing to negotiate, so be prepared to shop around if you’re not satisfied with the terms offered by your lender.

Step 4: Close Your Loan

Once you’ve negotiated the terms of your loan, it’s time to close the loan. Here are the critical steps in the closing process:

  • Review the Closing Disclosure.
  •  Your lender is required to provide a Closing Disclosure at least four days before closing. This document outlines the final terms of your loan, including the interest rate, points and fees, and closing costs. Review this document carefully to ensure there are no errors or surprises.
  • Arrange for a final walkthrough: Before closing, you’ll want to do a final walkthrough of the property to ensure everything is in order and any repairs have been completed.
  • Bring required documentation: You’ll need to bring several documents to closing, including proof of homeowners insurance, government-issued ID, and funds for the balance of your down payment and closing costs. You may also wire the funds in advance.
  • Sign the paperwork: At closing, you’ll sign a lot of paperwork, including the mortgage note, the deed of trust, and various disclosures. Be sure to read everything carefully and ask questions if anything needs clarification.
  • Fund the loan: Once you’ve signed all the paperwork, your lender will fund the loan, which means they’ll transfer the money to the seller, and the property will officially become yours.

Closing a loan can be complex, so working closely with your lender and real estate agent is essential to ensure everything goes smoothly.

Step 5: Manage Your Mortgage

Once you’ve closed your loan, managing your mortgage responsibly is essential to ensure that you don’t fall behind on payments and risk foreclosure. Here are some tips for managing your mortgage:

  • Set up automatic payments: Many lenders offer the option to set up automatic payments, which can help ensure you never miss a payment.
  • Stay up-to-date on your taxes and insurance: Your lender will likely require you to escrow your property taxes and homeowners’ insurance, which means they’ll collect these payments as part of your monthly mortgage payment. It’s crucial to stay up-to-date on these payments to avoid penalties and coverage gaps.
  • Monitor your credit: Your mortgage payment history is reported to the credit bureaus, so it’s essential to monitor your credit score and report for any errors or issues.
  • Refinance if necessary: If interest rates drop or your financial situation improves, consider refinancing your mortgage to lower your monthly payment or pay off your loan faster.

Shopping for a mortgage can be a complex process. Still, by understanding the different types of mortgages, comparing offers from multiple lenders, negotiating the terms of your loan, closing the loan, and managing your mortgage responsibly, you can find a home loan that fits your needs and budget. The CFPB’s Home Loan Toolkit provides additional information and resources to help you through the process.

For more information or to set up a free consultation, please click here:

To get started today, click here:

Mortgage for Rental Property: A Complete Guide

Investing in rental property can be a lucrative financial decision for those with the resources to do so. However, one of the critical factors in successfully owning a rental property is securing the right mortgage to finance it. This guide will discuss the various loan options available, the application process, down payment requirements, closing costs, tax benefits, risks, challenges, and frequently asked questions about obtaining a mortgage for rental property.

Loan Options

When it comes to securing a mortgage for rental property, there are several loan options available. Here are a few of the most common:

Conventional Loans:

These loans are not backed by the government and typically require a higher credit score and down payment. The interest rates for conventional loans are often lower than government-backed loans.

FHA Loans:

These loans are backed by the Federal Housing Administration and are designed for first-time homebuyers or those with lower credit scores. FHA loans have lower down payment requirements but typically have PMI, which translates into higher interest rates. FHA Loans are for primary homes only. Click here for more info on FHA loans.

VA Loans:

These loans are backed by the Department of Veterans Affairs are available to current and former members of the military and their spouses. VA loans typically have lower interest rates and do not require a down payment. VA Loans are for primary homes. Click here for more info on VA loans.

USDA Loans:

These loans are backed by the U.S. Department of Agriculture and are designed for those purchasing properties in rural areas. USDA loans often have lower interest rates and do not require a down payment. However, these loans are only for primary homes as well.

Non-QM Loans:

These are Non-Qualified mortgages, the funding source for which is from private investors and generally require a 25% down payment and no income documentation is needed so long as the DSCR (Debt service coverage ratio,) meets the lender’s requirement. Click here for more info on DSCR loans.

Application Process

The mortgage application process for rental property is similar to a traditional home purchase. Here are the steps involved:


Before beginning your property search, getting pre-approved for a mortgage is a good idea. The pre-approval will show you how much you can afford to spend on a rental property.

Property Search:

Once you are pre-approved, you can begin your property search. Remember that lenders may have specific requirements for the type of property they will finance, such as the number of units and the property’s condition.

Submit Application:

You must submit a mortgage application when you find a property you want. The application includes information about your income, assets, and credit history.

Property Appraisal:

 After submitting your application, the lender will order an appraisal of the property to determine its value.


Once the appraisal is complete, the lender will begin underwriting the loan. This process involves verifying your income and employment and reviewing your credit history and other financial information.


If your loan is approved, you will need to attend a closing meeting to sign the loan documents and pay any closing costs.

Down Payment:

The down payment required for rental property will depend on the type of loan you are applying for and the lender’s requirements. Generally, conventional loans require a down payment of 20% or more.

Putting down a larger down payment can help reduce your monthly mortgage and even help you secure a lower interest rate.

If you do not have the funds available for a down payment, there are some options for financing it. For example, you can take out a personal loan or use a home equity loan from another property you own.

Closing Costs:

Closing costs are fees associated with obtaining a mortgage, including appraisal, title insurance, underwriting, origination, and escrow fees. The total closing cost can range from 2% to 5% of the total loan amount. Some lenders may offer to cover some or all of the closing costs, which often results in a higher interest rate.

Tax Benefits:

Owning rental property can come with several tax benefits. One of the most significant benefits is the ability to deduct mortgage interest from your taxable income. In addition, other rental property expenses help reduce your overall tax liability and increase your cash flow.

Additionally, rental property owners may take advantage of depreciation deductions, which allow them to deduct a portion of the property’s value over time. However, It is important to note that tax laws can be complex, and consulting with a tax professional is recommended to ensure you maximize your deductions and follow all applicable tax laws.

Risks and Challenges:

Owning rental property can also come with several risks and Challenges. One of the most significant risks is the possibility of vacancies, which can lead to a loss of income and difficulty making mortgage payments.

Additionally, rental properties require ongoing maintenance and repairs, which can be costly and time-consuming. Managing tenants can also be challenging, as you may encounter difficult tenants or deal with eviction proceedings.

Therefore, before investing in rental property, it is essential to carefully consider these risks and challenges and ensure you have the financial resources and expertise to manage them.


How do I qualify for a mortgage for a rental property?

To qualify for a mortgage for rental property, you will typically need to have a good credit score, a stable income, and a down payment of at least 20% for a conventional loan. You may also need to meet specific requirements set by the lender, such as a certain debt-to-income ratio or a minimum rental income requirement.

What are the required documents for a mortgage application?

The documents required for a mortgage application may vary depending on the lender, but typically include proof of income (such as tax returns and pay stubs), bank statements, and documentation of any assets or debts.

What should I consider when choosing a loan for a rental property?

When choosing a loan for rental property, you should consider factors such as the interest rate, down payment requirements, and closing costs. You should also consider the type of loan that best fits your financial situation and investment goals.


Obtaining a mortgage for rental property can be a complex process, but with the correct information and resources, it is possible to navigate it successfully. By understanding the various loan options, the application approach, down payment requirements, closing costs, tax benefits, risks and challenges, and frequently asked questions related to rental

property mortgages, you can make informed decisions and maximize your chances of success as a rental property owner.

For more information, schedule an appointment with Blake Mortgage by clicking the link below.

“No Cost Loan?” There’s No Free Lunch!

Over the years, lenders have marketed a specific type of loan generically known as a “No-cost loan.”

There is no free lunch!

What do I mean by that? First, there are many costs associated with originating the loan. It includes underwriting, credit reporting, appraisal, inspection, escrow, title insurance, endorsements, origination, taxes, homeowners association, courier, notary, insurance, and other fees required to originate and fund a mortgage loan.

The loan estimate and closing disclosure break down these fees so the borrower can see the actual cost.

One of the most significant fees associated with the origination process is the origination fee, which is a fancy way of saying the broker’s commission. For example, suppose the borrower decides to “Buy down” the rate. In that case, they pay a discount fee. As the borrower, you get to choose the interest rate you want to pay for your loan, but the price you pay for this rate at par has zero discount or zero premium points. Therefore you must pay an origination fee to the broker. Each broker has their origination agreement that they charge on loans. Suppose the borrower does not want to pay this origination fee, which is usually 1% of the loan amount; In that case, they can bump the interest rate to a higher rate, and the lender will pay a yield spread, which is a percentage of the loan amount they can use to pay for some of the costs associated with the loan.

not a free lunch

The borrower can’t use the yield spread to pay the broker’s origination fee, but it can help pay for other loan costs, such as the title insurance or appraisal fee.

There are two types of compensation on loans: lender-paid compensation and borrower-paid compensation. In a lender-paid compensation scenario to the broker, the interest rate includes the lender-paid compensation agreed upon in advance with the lender. This rate/APR is usually higher than the rate/APR for “borrower-paid compensation,” which the borrower will pay out of his funds. Usually, the yield spread will be 1% of the loan amount for every quarter-point increase in interest rate. For example, say the broker quotes a rate of 6% for a 30-year fixed loan for $100,000. Generally, if the rate is bumped up by 25 basis points or to 6.25%, the lender will pay you 1% of the loan amount, or $1000, for you to use for your closing costs. In a lender-paid compensation scenario, the additional yield is characterized as lender-paid compensation “outside of closing.” Meaning that it will not come out of your funds at closing. However, in the long run, you will be paying more interest to compensate the lender for the upfront “lender-paid compensation to the broker. Sometimes, it makes sense to go for lender-paid compensation, especially if you won’t be in the house for an extended period. First, however, you must calculate the benefit of the higher interest rate and how that will impact your cash flow. Usually, it is in your best interest to negotiate the broker’s compensation and pay the broker from your funds. The “Loan Toolkit,” comes in handy, as you can compare multiple lenders’ offers and see which works best for you. Therefore, the actual cost of the “No-Cost” mortgage loan is in the details. By increasing your interest rate, you are paying a higher interest rate/APR and, therefore, more interest over the life of the loan than you would otherwise if you chose to pay all the loan’s closing costs yourself. Sometimes it makes sense to go for the higher rate, especially if you’re tight on cash and need help closing the loan with funds from other than your own.

To summarize, a “No-Cost” mortgage loan is a type of loan marketed by lenders as having no closing costs. However, this is not entirely accurate, as there are still costs associated with originating the loan, such as underwriting, credit reporting, appraisal, inspection, escrow, title insurance, endorsements, origination, taxes, homeowners association, courier, notary, insurance, and other fees.

One of the most significant fees associated with the origination process is the origination fee, which is the broker’s commission. If the borrower decides not to pay this fee, they can opt for a higher interest rate, and the lender will pay a yield spread, which is a percentage of the loan amount they can use to pay for some of the costs associated with the loan. However, in the long run, the borrower will pay more interest to compensate the lender for the upfront lender-paid compensation to the broker.

Therefore, the actual cost of a “No-Cost” mortgage loan is in the details. It is essential to calculate the benefit of the higher interest rate and how that will impact your cash flow in the long run. It may make sense to negotiate the broker’s compensation and pay the broker from your funds. The Loan Toolkit at www.blakemortgage.com/loan-toolkit can be helpful in comparing multiple lenders’ offers and determining which works best for you.

It’s important to note that sometimes it may make sense to go for a higher interest rate, especially if you’re tight on cash and need help closing the loan with funds from sources other than your own. However, it’s crucial to weigh the benefits and drawbacks of each option and determine which is the most cost-effective in the long run.

When considering a “No-Cost” mortgage loan, it’s crucial to review the loan estimate and closing disclosure provided by the lender. These documents will break down all the fees associated with the loan, including the interest rate, and help you determine the actual cost of the loan. In conclusion, a “No-Cost” mortgage loan may sound like an attractive option, but it’s essential to understand that there are still costs associated with originating the loan. It’s crucial to weigh the benefits and drawbacks of each option and determine which is the most cost-effective in the long run. Reviewing the loan estimate and closing disclosure provided by the lender and negotiating with the broker can help you make an informed decision and ensure that you’re getting the best deal possible.

The Benefits of Using Unsecured Business Purpose Loans

For many small businesses, obtaining a business loan can be quite difficult as many small business owners don’t have the collateral to pledge for a traditional secured loan. Therefore, unsecured business purpose loans are often a better option. While unsecured business loans are often tougher to qualify for and can carry higher interest rates than secured loans, they ultimately hold less risk for borrowers. 

Below, you’ll learn more about the benefits of using unsecured business purpose loans, how unsecured business loans work, and the steps you can take to obtain an unsecured business loan today. 

Understanding Unsecured Business Loans 

Essentially, unsecured business loans work in a similar manner as traditional secured business loans. However, the main difference is that borrowers are not required to offer a form of collateral with an unsecured business loan. But, as with any loan, there are pros and cons to securing this type of funding for your small business financing needs.

Pros of Unsecured Business Loans 

  • They can be easy to obtain because they typically offer a faster application process compared to secured business loans. 
  • Unsecured business loans can offer a quick approval time, with some lenders approving unsecured business loan applications in as little as 24 hours. 
  • There are often fewer restrictions associated with unsecured business loans. 
  • There’s less fear surrounding property loss as lenders must have a court order to take business or personal property if an unsecured business loan isn’t paid. 
  • If your business files for bankruptcy, courts often discharge unsecured loans, whereas secured loans are typically not discharged. 

Cons of Unsecured Business Loans 

  • Lenders typically require personal guarantees. This means that the owner of the business signs an agreement in which they agree to personally repay the loan if the business is unable to do so. 
  • Unsecured business loans are often riskier for lenders since they do not have collateral such as real estate to secure the loan, which typically causes these types of loans to have a higher interest rate. 
  • With unsecured business loans, the repayment terms are often shorter, and they may require more frequent payments.
  • Qualification for an unsecured business loan often has much stricter qualification requirements and can be difficult to obtain, especially if you or your business have a low credit score. If you don’t qualify for an unsecured business loan, you might want to look into other financing such as lines of credit, a merchant cash advance, or other business credit cards..  

Now that you know what an unsecured business loan is and its pros and cons, let’s look at how unsecured business loans work.

How Do Unsecured Business Loans Work? 

Unsecured business finance options work like traditional types of secured debt financing. However, with unsecured business loans, borrowers are not required to provide lenders with any form of collateral. Overall, instead of looking at the borrower’s collateral, lenders look at the borrower’s creditworthiness. Generally, you must have a minimum credit score of 680 for a bank to consider you for an unsecured business loan.  Lenders also look at the loan amount and the business’s cash flow to determine whether the business is a good risk in terms of providing a loan. 

Steps to Obtain an Unsecured Business Loan 

To obtain an unsecured business loan, you will need to follow certain steps to make sure you are even eligible to apply. The following includes some of the criteria you will need to meet in order to qualify for an unsecured loan from a bank. 

  • You will need to have multiple years of documentation for your business. 
  • It is in your favor to have a strong personal credit score. 
  • You should have an excellent annual revenue as banks examine this element before granting a loan. 

Once you have determined if you meet the criteria of the three elements mentioned above, you can then start the process of obtaining an unsecured business loan from the financial institution of your choice. It is also beneficial to create a detailed business plan before seeking an unsecured business loan from a bank or other financial institution. 

In your business plan, be sure to include:

  • A company description
  • What products or services your business sells
  • The management structure of your business
  • An analysis of the industry your business is in
  • A SWOT analysis of your business
  • Any other vital information regarding your business

When applying for an unsecured business loan, keep in mind that the most likely place to obtain this type of loan is from an alternative lender rather than a traditional bank. Popular alternative lenders are financial technology firms that use automated technology to determine a small business’s credit history and overall creditworthiness. Frequently, alternative lenders end up charging borrowers more than traditional banks or credit unions. These are all elements to consider when looking to obtain an unsecured business loan from any type of financial institution, including the Small Business Administration’s (SBA) small business loans. 

How Blake Mortgage Can Help  

Hopefully, through this overview on unsecured business loans, you have been able to see some of the benefits this type of loan can provide to you and your small business operation. If you’re looking to start the process of obtaining an unsecured business loan, then Blake Mortgage is here to help. 

The dedicated team at Blake Mortgage works diligently to connect you with a wide variety of financial institutions that are willing to lend money to small business owners seeking loans. Whether you’re worried about qualifying for a loan or simply getting the best rate, we can help. 

Are you ready to discover how Blake Mortgage can help you obtain a business loan today? If so, give us a call or make an appointment to learn more.