Beware of these top unfair lending practices for business purpose loans
Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
LuxePrivate Investments LLC 570 Reviews
Beware of these top unfair lending practices for business purpose loans
Most Popular Reply
Lender · Irvine, CA · Member since 2025 · 27 posts · 8 votes
1yErik – great breakdown. I see the same themes on my end. The bait-and-switch in particular has cost more than a few investors time and money. I always remind borrowers that in business-purpose lending, disclosure rules aren’t the same as consumer mortgages — which makes transparency and written clarity with your lender that much more important.
Luke, your point is well taken. The appraisal and 1007 analysis do matter, but a borrower should still know exactly how fees and points are structured up front. Even if the final rate can’t be locked on day one, there’s no reason for surprises at closing.
5 Replies
- Lender · Cincinnati, OH · Member since 2025 · 59 posts · 24 votes1y
It's upsetting to see the lengths that some lenders will go just to spruce up a deal. I'm a firm believer in transparency when it comes to lending. I will disclose points if need be and also provide that day's pricing when I send disclosures.
I'm curious to your point about not being able to lock until final approval -- for the DSCR loans I do, we can't lock upfront but that's only because the loan hinges on the appraisal and the 1007 market rent analysis.
- Lender · Member since 2022 · 6k+ posts · 1k+ votes1y
Quote from @Luke Feliciano:
It's upsetting to see the lengths that some lenders will go just to spruce up a deal. I'm a firm believer in transparency when it comes to lending. I will disclose points if need be and also provide that day's pricing when I send disclosures.
I'm curious to your point about not being able to lock until final approval -- for the DSCR loans I do, we can't lock upfront but that's only because the loan hinges on the appraisal and the 1007 market rent analysis.
This one is lender specific as I have seen a few reputable DSCR lenders lock the rate until the appraisal is fully reviewed. But for the most part, especially on the wholesale side, you can lock In a rate once the loan is registered using the borrower's estimates. Now if the rents come in lower or the value comes in lower, the loan will need to be adjusted. However there are many DSCR lenders that will lock in the rate sheet for that specific day. So if you do need to adjust, you are getting the rates from the day you locked it and not the current rate sheet.
What I have seen very commonly done is lenders float the terms and if something comes up, they will price it with a little bit of yield spread on the back. At this point, especially on a purchase, it is too late for the borrower to walk away.
LuxePrivate Investments LLC 570 Reviews - Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes1y
Quote from @Erik Estrada:
Quote from @Luke Feliciano:
It's upsetting to see the lengths that some lenders will go just to spruce up a deal. I'm a firm believer in transparency when it comes to lending. I will disclose points if need be and also provide that day's pricing when I send disclosures.
I'm curious to your point about not being able to lock until final approval -- for the DSCR loans I do, we can't lock upfront but that's only because the loan hinges on the appraisal and the 1007 market rent analysis.
This one is lender specific as I have seen a few reputable DSCR lenders lock the rate until the appraisal is fully reviewed. But for the most part, especially on the wholesale side, you can lock In a rate once the loan is registered using the borrower's estimates. Now if the rents come in lower or the value comes in lower, the loan will need to be adjusted. However there are many DSCR lenders that will lock in the rate sheet for that specific day. So if you do need to adjust, you are getting the rates from the day you locked it and not the current rate sheet.
What I have seen very commonly done is lenders float the terms and if something comes up, they will price it with a little bit of yield spread on the back. At this point, especially on a purchase, it is too late for the borrower to walk away.
This is how we operate. We lock using borrower estimates and comps/internal analysis and then adjust the loan profile as needed if the appraisal comes in high or low.
- Lender · Irvine, CA · Member since 2025 · 27 posts · 8 votes1y
Erik – great breakdown. I see the same themes on my end. The bait-and-switch in particular has cost more than a few investors time and money. I always remind borrowers that in business-purpose lending, disclosure rules aren’t the same as consumer mortgages — which makes transparency and written clarity with your lender that much more important.
Luke, your point is well taken. The appraisal and 1007 analysis do matter, but a borrower should still know exactly how fees and points are structured up front. Even if the final rate can’t be locked on day one, there’s no reason for surprises at closing.
Quote from @Erik Estrada:
I have been working on a lot of retail fall out deals lately and wanted to make any new investor aware of the most common tactics I see a lot in the DSCR/Hard Money space.
1. Failing to accurately disclose fees and rate locks.
I had one client tell me that a well-known direct lender did not provide her any preliminary settlement statement/CD and mentioned that they could not lock in her interest rate/terms until final approval. While this is something somewhat common in the commercial space 5+ Unit MFH and others, there are many residential DSCR lenders that have adopted a disclosure practice and can lock your rate for 30-45 days. I would suggest working with a lender that can be very transparent and honest with you.
2. Bait and Switch
This can be prevented by doing some background research on the mortgage company/ loan officer. Look for licensing, reviews, customer complaints. It is highly unlikely for someone to take time out of their day to leave a bad review, especially if a lender has been honest and transparent throughout the entire process. I get it, some deals can fall out due to external reasons, but if you keep seeing bad reviews be very cautious.
3. Sticking Gum and seeing if it will stick
This one is self-explanatory. If you are constantly getting negative feedback from your deal, be very careful if you get a lender that is overly confident in your deal. While there are instances where you can close on a very "hairy" deal with a lender that CAN perform, the tone will be very different. Please check for reviews and see if you can get written feedback from an Underwriter.
If it is too good to be true...
Hurst Real Estate, INC4.986 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.