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Category: Featured Blog

Arizona Asset-Backed Loans

As the winds of financial change continue to blow, Arizonians seek flexible solutions to secure their economic stability. Enter asset-backed loans – the key to unlocking opportunities, and overcoming monetary hurdles. In the Grand Canyon State, the power of asset-backed loans is unparalleled, providing individuals, and businesses with the leverage needed to navigate uncertain terrain and grasp growth opportunities.

Whether it’s leveraging real estate holdings, or utilizing valuable assets, the flexibility offered by Arizona asset-backed loans empowers borrowers to attain the financial freedom they desire. This article delves into the intricacies of asset-backed loans, shedding light on how they can serve as a reliable financial instrument in today’s dynamic landscape. From understanding the eligibility criteria to exploring the diverse array of assets that can be utilized, we guide you through the multifaceted world of asset-backed loans.

Join us on this journey as we unravel the compelling power of these loans and how they can empower you to achieve your financial aspirations in the thriving landscape of Arizona.

What Are They?

They are a form of financing where the borrower use assets as collateral to secure a loan. These assets range from real estate properties to jewelry or fine art. Unlike traditional loans, which are often dependent on credit history and income, asset-backed loans rely on the value of the pledged assets to determine the loan amount and terms. This provides an alternative borrowing option for individuals who may need to meet the stringent criteria of conventional lending institutions. Asset-backed loans are desirable for borrowers looking to unlock the value of their assets without having to liquidate them.

Asset-backed loans offer several distinct advantages over traditional forms of financing:

  1. They allow individuals with valuable assets but limited income or credit history to access capital.
  2. Utilizing a diverse range of assets as collateral expands the accessibility of asset-backed loans to a broader demographic, offering a pathway to financial empowerment for many individuals and businesses in Arizona.


One of the defining features of asset-backed loans is the versatility of assets that can be used as collateral. Real estate properties, including residential homes and commercial buildings, are among these loans’ most commonly pledged assets. Additionally, valuable personal assets such as luxury vehicles, fine jewelry, art collections, and investment portfolios can serve as collateral. The broad spectrum of eligible assets allows borrowers to leverage their entire asset portfolio to secure financing, providing flexibility not typically afforded by traditional lending avenues.

Types of Assets Used as Collateral

Obtaining an asset-backed loan involves several key steps, beginning with the valuation of the assets being pledged as collateral. Lenders typically conduct thorough assessments to determine the value and marketability of the assets, ensuring that they can serve as viable security for the loan. Once the asset valuation is completed, the borrower and lender negotiate the loan terms, including the loan amount, interest rate, and repayment schedule. Following mutual agreement, the assets are formally pledged as collateral, and the loan proceeds are disbursed to the borrower. Throughout this process, transparency and communication between the borrower and lender are essential to ensure a smooth and efficient transaction.

The Process of Obtaining an Asset-Backed Loan

While asset-backed loans offer numerous benefits, it is crucial for borrowers to carefully evaluate the associated risks. One primary risk is the potential loss of assets in the event of default on the loan. Borrowers must assess their ability to meet the repayment obligations to avoid the risk of asset forfeiture. Additionally, fluctuating market values of certain assets, such as real estate or investment portfolios, can impact the loan-to-value ratio and the overall risk exposure for both the borrower and lender. Understanding risks and implementing risk mitigation strategies is paramount for borrowers considering asset-backed loans as a financing option.

Evaluating The Risks

The inherent flexibility of asset-backed loans lies in their ability to unlock the latent value of assets and convert them into usable capital. This advantageous for individuals and businesses who fund entrepreneurial ventures, real estate developments, or personal financial needs without disrupting their asset holdings. Moreover, asset-backed loans can offer a pathway to overcome temporary financial challenges or capitalize on time-sensitive opportunities, providing a level of agility and responsiveness that is essential in today’s dynamic economic environment.

How Can Asset-Backed Loans Provide Financial Flexibility?

Selecting the right lender is a critical aspect of securing an asset-backed loan. Borrowers should seek out reputable private lending institutions with a proven track record in asset-based financing. It is essential to consider factors such as the lender’s experience, valuation process transparency, loan structuring flexibility, and responsiveness to borrower needs. Additionally, understanding the lender’s terms and conditions, including any potential fees or penalties, is crucial for making an informed borrowing decision. By exercising due diligence in selecting a lender, borrowers can ensure a positive borrowing experience and a mutually beneficial lending relationship.

Choosing The Right Lender 

To illustrate the practical application of asset-backed loans, consider the case of a small business owner in Arizona who utilized their commercial property as collateral to secure an asset-backed loan. With the injected capital, the business could expand its operations, invest in new equipment, and increase its market presence, ultimately leading to significant revenue growth. Similarly, an individual borrower leveraged their investment portfolio to obtain an asset-backed loan, allowing them to seize a lucrative investment opportunity and realize substantial returns. These case studies exemplify the transformative impact that asset-backed loans can have on achieving financial goals and propelling economic growth.

Case Studies 

As with any financing, asset-backed loans are subject to legal and regulatory frameworks that govern their implementation. Borrowers and lenders must adhere to applicable laws and regulations. It is crucial to engage legal counsel to review loan agreements, assess the enforceability of collateral arrangements, and navigate any regulatory requirements specific to asset-backed lending in Arizona. By proactively addressing legal considerations, borrowers and lenders can establish a secure foundation for asset-backed loan transactions and safeguard their respective interests.

Legal and Regulatory Considerations 

In conclusion, asset-backed loans have emerged as a potent tool for unlocking financial flexibility in Arizona. leveraging diverse range of assets as collateral and the potential for favorable borrowing terms position asset-backed loans as a compelling financing option for individuals and businesses alike. By understanding the nuances of asset-backed loans, evaluating the associated risks, and selecting reputable lending partners, borrowers can harness the power of asset-backed loans to realize their financial aspirations and navigate the ever-changing terrain of the Arizona economy with confidence and resilience.

By delving into the multifaceted world of asset-backed loans, we have uncovered the transformative potential of these financial instruments in empowering borrowers to achieve greater financial flexibility and seize opportunities for prosperity. As the demand for flexible financing solutions continues to rise, asset-backed loans stand out as a resilient and adaptable pathway to financial empowerment in the vibrant landscape of Arizona.

Conclusion: The Potential Impact  on Financial Flexibility

Asset-backed loans, also known as collateralized loans, are a form of borrowing that involves using assets as collateral to secure a loan. In Arizona, these loans offer a unique opportunity for individuals and businesses to leverage their assets to access much-needed capital. This can be particularly advantageous for those needing to meet the stringent requirements of traditional unsecured loans.

The eligibility criteria for asset-backed loans in Arizona typically revolve around the value and type of assets utilized as collateral. Lenders assess the market value and liquidity of the assets to determine the loan-to-value ratio and the overall risk associated with the loan. This approach provides a level of flexibility for borrowers, as it allows them to unlock the value of their assets without being solely dependent on their creditworthiness.

Asset-backed loans in Arizona can be secured by real estate, investment portfolios, valuable personal property, and future cash flows from contracts or receivables. This diverse array of collateral options allows borrowers to choose assets that best align with their financial objectives and risk tolerance. As a result, asset-backed loans can be tailored to meet the specific needs of borrowers, whether they are seeking short-term liquidity or long-term investment capital.


Disclaimer: This blog is for informational purposes only, as Blake Mortgage does not originate this type of loan. Please seek out specialty lenders who do originate such loans.


Blake Mortgage only originates loans secured by real property.

Asset Depletion Loans: A Comprehensive Guide


Asset depletion loans, also known as asset-based loans or asset dissolution loans, offer a unique borrowing solution for individuals who may not have a traditional income but possess substantial assets. These loans calculate creditworthiness based on the borrower’s liquid assets rather than regular income streams, such as salaries or wages.

How Asset Depletion Loans Work

Unlike traditional loans, which primarily consider an applicant’s income and credit score, asset depletion loans focus on the borrower’s asset value. Lenders assess the borrower’s liquid assets—like savings accounts, investment portfolios, and retirement accounts—to determine the loan amount they can offer. This approach allows individuals with high asset values but low traditional income to access credit.

Importance for Specific Borrowers

Asset depletion loans can be crucial for retirees, investors, and self-employed individuals who need to finance a purchase or investment but do not have the regular income typically required for a loan. By utilizing their assets, borrowers can leverage their wealth to meet their financial goals without liquidating their investments.

Understanding the eligibility criteria and required documentation is vital for borrowers considering an asset depletion loan. Lenders have specific requirements to qualify for this type of loan, focusing on the borrower’s assets.

Eligibility Criteria

Applicants must have significant liquid assets to be eligible for an asset depletion loan. These assets typically include:

  • Cash and cash equivalents
  • Stocks, bonds, and mutual funds
  • Retirement accounts (IRAs, 401(k)s)
  • Other investment accounts

The exact criteria will vary by lender, but the common thread is that the assets must be easily accessible and convertible into cash. The borrower should also have a favorable credit history. However, the credit score requirements may be less stringent than for traditional loans, given the focus on assets.

Required Documentation

Lenders require detailed documentation to verify the borrower’s assets. This documentation may include:

  • Bank statements
  • Brokerage accounts
  • Retirement account statements
  • Other financial statements showing proof of ownership and value

Some lenders also require an appraisal of the assets, mainly if they include real estate or other non-liquid investments. Accurate and up-to-date documentation is essential for a smooth loan application process.

Types of Assets Considered

While liquid assets are preferred, some lenders may consider semi-liquid or fixed assets under certain conditions. However, the emphasis is always on the ability to liquidate the assets if necessary to repay the loan. Borrowers need to understand that not all assets are created equal in the eyes of lenders, and some may carry more weight than others.

Calculation of Loan Amount

Determining the loan amount for an asset depletion loan involves a specific formula that varies slightly between lenders. However, the core methodology remains consistent: it is based on the total value of the borrower’s assets and the expected duration the assets need to last.

Formula Used for Asset Depletion Loans

Most lenders use a standard formula to calculate the loan amount:

  1. Total Asset Value: Add all eligible liquid assets.
  2. Subtract Any Down Payment: If the loan is for a property purchase, subtract the down payment from the total asset value.
  3. Divide by Loan Term: Divide the resulting figure by the number of months of the loan term. The loan term typically ranges from 180 months (15 years) to 360 months (30 years). Some exceptions exist to this rule, where some lenders have a much shorter term.
  4. Monthly Depletion Amount: The result is the monthly depletion amount that the lender will consider income.

Examples of Calculation

For instance, if a borrower has $1,000,000 in liquid assets and is looking to get a loan with a 30-year term (360 months), the calculation would be as follows:

$1,000,000/360≈$2,777.78 per month.

This monthly amount would be what the lender considers as the borrower’s income from assets, which is then used to determine the loan size, considering other factors such as existing debts, credit score, and the lender’s loan-to-value ratio.

Factors Affecting the Loan Amount

  • Interest Rates: Higher interest rates can reduce the loan amount since they increase the cost of borrowing.
  • Age of the Borrower: Some lenders adjust the calculation based on the borrower’s age, with the rationale being that older borrowers may need their assets to last a shorter period.
  • Loan-to-Value Ratio (LTV): A lower LTV may be required for asset depletion loans than traditional loans, affecting the total loan amount.

Understanding these factors is crucial for borrowers to estimate the loan amount they might receive and to plan their finances accordingly.

Pros and Cons of Asset Depletion Loans

Asset depletion loans can be advantageous for specific borrowers, but like any financial product, they come with potential drawbacks. Borrowers need to weigh these carefully before proceeding.

Benefits for Borrowers

  • Flexibility for Non-Traditional Income Earners: Ideal for retirees, entrepreneurs, and consumers with uneven cash flows and significant assets but lack a steady income stream.
  • Potential for Larger Loan Amounts: If a borrower has considerable assets, they may qualify for a more significant loan amount than what they would receive with a traditional income-based loan.
  • Avoidance of Asset Liquidation: Borrowers can keep their investment portfolios intact and possibly avoid capital gains taxes from selling off assets to generate cash.

Potential Risks and Downsides

  • Interest Rates: Asset depletion loans may come with higher interest rates than traditional mortgage loans due to the perceived increased risk by lenders.
  • Depletion of Assets: Over the loan term, there’s a risk of depleting assets, which can impact long-term financial stability.
  • Complexity and Scrutiny: The loan application process can be more complex, and lenders may scrutinize the borrower’s financial situation more closely.

Comparison with Traditional Loans

Understanding the nuances between asset depletion loans and traditional loans can help borrowers decide which is more suitable for their circumstances.

Key Differences from Traditional Loans

  • Income Verification: Traditional loans require proof of income, whereas asset depletion loans focus on liquid assets.
  • Interest Rates and Terms: The terms and interest rates can differ significantly, often less favorable in asset depletion loans due to the different risk profiles.
  • Qualification Process: The qualification process for asset depletion loans can be more involved, requiring detailed asset documentation and sometimes a more substantial down payment.

Situations Where Asset Depletion Loans Are Preferable

Asset depletion loans are often preferable for borrowers who:

  • Have a high net worth but a low taxable income.
  • Want to purchase a property without selling off investments.
  • Are retired and have significant savings but no regular income.

Comparison with Traditional Loans

When considering asset depletion loans, it’s essential to understand how they stack up against traditional loan options. This comparison can guide borrowers in making an informed decision about which loan type best fits their needs.

Key Differences from Traditional Loans

  • Income Consideration: Traditional loans focus on income and employment history for loan qualification. In contrast, asset depletion loans assess borrowers’ ability to pay (ATR) based on their liquid assets.
  • Debt-to-Income Ratio: A low debt-to-income ratio is crucial for traditional loans, whereas asset depletion loans are less concerned with monthly income and more with the overall asset base.
  • Underwriting Process: The underwriting process for asset depletion loans is often more complex, requiring a thorough evaluation of the borrower’s assets, whereas traditional loans follow a more standardized income verification process.

Interest Rates and Terms

  • Interest Rates: Interest rates for asset depletion loans may be higher due to the lender’s perceived risk associated with the lack of traditional income.
  • Loan Terms: Borrowers might find more flexibility in the loan terms for asset depletion loans, but this can vary significantly from lender to lender.

Situations Where Asset Depletion Loans Are Preferable

Asset depletion loans may be a better option for individuals:

  • Who are self-employed with variable income but significant assets.
  • Have retired and have considerable savings or investment income.
  • Wish to invest in property without disturbing their investment strategies.

Borrower Considerations

  • Financial Goals: Borrowers should consider their long-term financial goals and how the loan type will impact their wealth management.
  • Market Conditions: Current market conditions can influence interest rates and terms, affecting the decision between a traditional and an asset depletion loan.
  • Lender Expertise: It is also crucial to work with lenders who have expertise in asset depletion loans to ensure proper handling of the loan process.

Application Process

The application process for asset depletion loans is intricate and requires careful preparation. This section provides a step-by-step guide to navigating the application, with tips for a successful outcome and common pitfalls to avoid.

Step-by-Step Guide to Applying

  1. Asset Evaluation: Begin by thoroughly evaluating your assets. Prepare a detailed list of your liquid assets and recent statements to verify their value.
  2. Lender Research: Research potential lenders who offer asset depletion loans and understand their specific requirements and terms.
  3. Pre-Application Inquiry: Engage in pre-application discussions with lenders to clarify questions and ensure you meet their eligibility criteria.
  4. Documentation Gathering: Collect all necessary documentation, including bank statements, investment portfolio summaries, and other asset statements.
  5. Application Submission: Complete the loan application form, attach all required documentation, and submit it to the lender.
  6. Underwriting Process: The lender will review your application during the underwriting process, which may involve additional requests for information or clarification.
  7. Loan Offer Review: Upon approval, carefully review the loan offer, paying close attention to the interest rates, terms, and any additional fees.
  8. Closing the Loan: If you accept the loan offer, you’ll proceed to the closing process, which includes signing the loan agreement and managing the disbursement of funds.

Tips for a Successful Application

  • Accuracy: Ensure all information provided is accurate to prevent delays or denial.
  • Professional Advice: Consider hiring a financial advisor or attorney to help navigate the complexities of asset depletion loans.
  • Response Time: Respond promptly to any lender requests for additional information.

Common Mistakes to Avoid

  • Incomplete Documentation: Failing to provide all necessary documentation can lead to application delays or denial.
  • Overestimating Assets: Be realistic about the valuation of your assets; overestimation can lead to issues during the underwriting process.
  • Ignoring Terms and Conditions: Not thoroughly understanding the loan’s terms and conditions can lead to surprises.

Case Studies

Real-life examples can provide valuable insights into the process and potential outcomes of securing an asset depletion loan. This section features case studies illustrating how borrowers have successfully utilized asset depletion loans to meet their financial needs.

Case Study 1: The Retired Investor

John, a recently retired individual, has a sizeable investment portfolio but a reduced regular income after retirement. He wanted to buy a second home without liquidating his investments, which would have incurred significant capital gains taxes. John applied for an asset depletion loan, using his portfolio as proof of his ability to repay the loan. The lender considered his assets and granted him a loan with terms. John was able to purchase the home and maintain his portfolio.

Case Study 2: The Self-Employed Entrepreneur

Sarah, a self-employed entrepreneur, had irregular income streams but substantial cash in the bank and an impressive stock portfolio. She needed funds to buy a new property. Still, her variable income made it challenging to qualify for a traditional loan. An asset depletion loan provided her with the necessary funds, using her evidence of the cash in the bank and stock as the basis for her loan application. The loan enabled her to purchase her dream home without selling her assets.

Lessons Learned:

  • Self-employed individuals with variable income can benefit from asset depletion loans.
  • Asset depletion loans can provide the flexibility needed for entrepreneurs and self-employed people to buy property without sacrificing their asset base.

Lenders and Interest Rates

Regarding asset depletion loans, the landscape of lenders and the interest rates they offer can vary greatly. Potential borrowers should be well-informed about where to look for these loans and how to compare the rates and terms.

Overview of Lenders Offering Asset Depletion Loans

  • Traditional Banks: Some banks offer asset depletion loans but may require a pre-existing relationship with the borrower.
  • Private Lenders: Private lenders might specialize in asset-based lending and can offer more tailored products for individual needs.
  • Mortgage Brokers often provide more flexible options and a streamlined application process.

Comparison of Interest Rates and Terms

Interest rates and terms are crucial factors in any loan decision. Here are some aspects to consider:

  • Rate Comparison: Borrowers should compare rates from several lenders to find the most competitive offer.
  • Fixed vs. Adjustable Rates: Decide whether a fixed or adjustable-rate loan fits your financial situation better.
  • Fees and Penalties: Understand all the associated costs, including origination fees, closing costs, and prepayment penalties, if any.

Negotiating with Lenders

  • Asset Portfolio: Presenting a solid asset portfolio can give you a better position to negotiate terms.
  • Financial Health: Demonstrating overall financial health beyond just assets can also be advantageous.
  • Market Knowledge: A good understanding of the current financial market can provide leverage in negotiations.

Finding the Right Fit

Choosing the right lender involves balancing the interest rates with the quality of service and the lender’s understanding of asset depletion loans. Borrowers should look for lenders who are accustomed to dealing with high-net-worth individuals and non-traditional income streams.

Continuing with the “Tax Implications” section:

Tax Implications

Asset depletion loans can have significant tax implications, and understanding these is critical for borrowers to ensure they are making the most financially savvy decisions.

Consulting with a Tax Professional

Given the complexities of tax law and its implications on financial products:

  • Professional Advice: It is highly advisable to consult with a tax professional or financial advisor who can provide personalized advice based on the borrower’s specific financial situation.
  • Tax Law Changes: Tax laws can change, affecting the benefits and drawbacks of asset depletion loans. Staying informed about these changes is essential.

Documentation and Record Keeping

  • Thorough Records: Borrowers should keep detailed records of all transactions related to their asset depletion loans for tax purposes.
  • Annual Reviews: Conduct yearly reviews of your financial situation and tax implications, especially if there are significant changes in income, assets, or tax laws.

Future of Asset Depletion Loans

The financial market is ever-evolving, and the sector of asset depletion loans is no exception. Understanding the trends and predictions in this niche can help borrowers and investors anticipate changes and make informed decisions.

Trends in the Market

  • Increasing Popularity: There’s a growing trend of asset depletion loans as the population ages and more retirees look for ways to finance their lifestyles without a traditional income.
  • Technological Advancements: Technology is making it easier for lenders to assess and manage asset depletion loans, which could lead to more competitive products and services.
  • Diversification of Products: Lenders are increasingly offering various asset depletion loan products to cater to a broader range of borrowers.

Predictions for the Future

  • Regulatory Changes: Potential regulatory changes could affect the asset depletion loan market by expanding and easing access to these loans or imposing more stringent requirements.
  • Market Volatility: The impact of economic cycles on investment portfolios could influence the viability of asset depletion loans for both lenders and borrowers.
  • Demographic Shifts: As the Baby Boomer generation continues to enter retirement, their borrowing habits may significantly shape the future of asset depletion lending.

Staying Informed

For potential borrowers, staying informed about these trends is critical:

  • Continuous Learning: Keep abreast of financial news and market developments related to asset-based lending.
  • Professional Networks: Engage with financial advisors and networks that can provide insights into the future of asset depletion loans.
  • Flexibility in Planning: Maintain flexibility in financial planning to adapt to changes in the loan market.

How to Choose the Right Lender for Your Construction Loan

Navigating the path of financing your dream home takes time and effort. Thankfully, it feels less overwhelming with guidance on choosing an appropriate lender for a construction loan in Arizona.

You’re not alone in this journey; understanding how to pinpoint that perfect match makes all the difference at every stage of building or renovating.

Know Your Credit Score

Let’s delve into understanding one crucial aspect: your credit score. This three-digit number proves to be pivotal in securing any loan. A higher score gives you more negotiating power while approaching potential lenders for Arizona construction loans.

Banks love working with borrowers with excellent credit standing, which signifies less risk involved. Remember, each point counts! Regularly monitoring your credit report allows early detection of errors or discrepancies that could lower your score.

Correct them by contacting respective repositories: www.experian.com, www.equifax.com, and www.transunion.com. Maintaining A good payment history in paying off existing debt, Such as revolving credit cards, mortgages, Installment debt, car payments, etc., also works wonders in boosting your credit score over time.

The rule is simple: understand where you stand before seeking an appropriate financing solution like an Arizona construction loan.

Gather Information About Lenders

To gather information about potential lenders:

  1. Start by researching online.
  2. Look at lender reviews on reputable sites to gain insights into their customer service and loan processing practices.
  3. Reach out personally, too: chatting with existing clients or branch managers can be illuminating.

Additionally, look for transparency in all operations; those lenders who clearly spell out terms without hidden fees deserve your consideration.

Next, focus on expertise: the lender must understand real estate projects like yours inside and out. This could ease discussions regarding everything from timelines to property values post-construction.

Remember to scrutinize financial stability as well. You want assurance that funds will not dry up mid-project due to sudden setbacks in the company’s fortunes. Additionally, consider revisiting local banks if they offer construction loans competitively priced against non-bank counterparts.

Compare Loan Rates and Fees

As you look deeper into your construction loan options, compare rates and fees. This comparison will give you a clearer picture of what lenders are offering. Many lending institutions present their rate structures differently, so take the time to understand each one. Explore each loan option’s features and costs before making a final decision.

Use online tools for easy comparisons, saving money and stress in the long run. Always ensure that all these amounts have been factored in before deciding which lender best suits your needs.

Remember, though: the lowest rate only sometimes means it’s the most beneficial option. Adjustable-rate loans may initially seem economical, but remember they carry risks too!

Get quotes from various sources, such as credit unions, banks, or mortgage companies.

Understand Loan Terms and Structure

Understand the loan structure to get the best out of your construction project. The terms lenders provide can make a world of difference to your finances. With construction loans, principal repayment starts after completion, not during construction. You pay interest-only payments during the construction phase.

One crucial aspect of the construction loan is whether the loan is a “one-time close” or not. This means that some lenders will lend the money during the construction phase, only to have you refinance the loan, pay it off, and get into a permanent 30-year fixed loan After the construction is completed.

The latter scenario puts you in a problem, which is interest-rate risk. You will be subject to the then effective market rates, which could be higher than the current interest-only construction loan payments rate.

In addition, the refinance means new origination, discount, Underwriting, appraisal, escrow, title, recording fees, and so on.

You only have to pay those fees once in a single or a “One-time” close construction loan. When the construction is completed, and you have the occupancy permit from the city, the loan flips to a 30-year fixed loan at the same rate as you had with the interest-only portion of the loan.

Check for Additional Services Provided by the Lender

As you search for the perfect construction loan lender, look beyond interest rates. Consider what other services they provide that can streamline your building journey.

Some lenders offer a convenient feature of seamlessly converting a construction loan into a permanent mortgage at completion. This can be beneficial because it saves time and reduces the required paperwork.

Moreover, some lenders also provide access to build consultation services that help you make informed decisions regarding budgeting and material selection when building your dream home in Arizona. Also, check if prospective companies offer pre-approval options; knowing the maximum funds available helps shape realistic plans without jeopardizing financial security.

Lastly, assess their customer service reputation. Prompt responses and clear explanations are essential for successful transactions throughout a complex process, such as building a house from the ground up.

Consider Other Factors to Help You Decide

As you navigate your construction loan journey, other factors can help refine your choice. Reputation matters; a lender with positive reviews from satisfied clients offers trustworthiness and credibility.

Think about the long-term relationship, too. Excellent customer service can provide comfort during stressful times in the process. Accessibility also matters; interacting with or contacting lenders should be easy to quickly resolve potential issues.

Likewise, consider flexibility; a project might expand, requiring additional funding or change in some way, affecting repayment terms. How accommodating are they? Lastly, but certainly not least, expertise! Does this group specialize in Arizona-based projects? Are they aware of unique regional challenges that may need addressing?

Please take note these elements don’t directly relate to financial aspects like rates or fees. Yet, they influence how smoothly things proceed, with fewer headaches! Remember, money isn’t everything when taking on a project as significant as building your dream home.

Also, consider their customer service and reputation; responsive support during the building process can make a difference!

Selecting the right lender for your construction loan should feel manageable. Look for one with industry expertise, like Blake Mortgage, that offers flexible terms and competitive rates. Transparency is vital.

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. 

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.

    Dealing and Negotiating Key Steps

    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. 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. You can ask 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:

    Rental Property Mortgage: 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.

    fha loan

    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:

    Private Mortgage Insurance


    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.

    Origination Fee

    One of the most significant fees associated with the origination process is the origination fee. It 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. In the amount of $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.

    It Makes Sense

    However, in the long run, you will be paying more interest to compensate the lender. It is for the upfront “lender-paid compensation to the broker. Sometimes, it makes sense to go for lender-paid compensation. This is 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.

    What is a “No-Cost” mortgage loan?

    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.

    Important Note

    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. It 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.
    • 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.