By Bill Lyons | Published on February 1, 2024
TABLE OF CONTENTS

    That is exactly what high-net-worth lending is. It includes a more personalized level of service that is often customized to someone’s entire financial life. Not only do these types of loans usually come with lower interest rates when compared to traditional ones, but they also have longer repayment periods.

    This guide will cover high-net-worth lending in more detail, including types of high-net-worth loans, strategies for securing these loans, and more. 

    KEY TAKEAWAYS

    • Just because someone falls into a high-net-worth category doesn’t mean lending will be simple. In some cases, high-net-worth lending can be more complex than for someone applying for a traditional loan.
    • Having an inconsistent income, coupled with stricter regulations in the wake of the 2008 financial crisis, are top hurdles that high-net-worth individuals must overcome for lending purposes.
    • Using asset-based loans, experimenting with different types of mortgages, and tailored loans are all viable options for high-net-worth lending.

    How High-Net-Worth Lending Works

    High-net-worth lending is very different from traditional lending in a few key ways. For starters, the type of people who fall into this category don’t simply walk into a bank to meet their needs. They usually select either a private banker or a wealth manager with a focus on high-net-worth lending.

    An individual will have their entire financial life carefully examined when working with a private banker. This includes their net worth, income, creditworthiness, and more. The loan structure, terms, and conditions will be tailored to this person’s financial needs.

    Characteristics of High-Net-Worth Lending

    High-net-worth individuals tend to be those with a lot of money, but much of it is not derived from a conventional income source. For example, they typically don’t have a traditional 9-to-5 job where they get paid every week or two. They may make the majority of their money through investments or the stock market. Because of that, they may not have liquid assets.

    Likewise, a high-net-worth individual most likely isn’t buying a traditional piece of property. They’re likely buying a penthouse or a historic mansion, or they may even be investing in a piece of commercial real estate.

    Types of High-Net-Worth Loans

    There are a few different types of loans that high-net-worth individuals tend to pursue, including but not limited to the following:

    • Secured and unsecured loans: Secured loans have been secured with collateral like real estate or expensive art collections. Unsecured loans have no such collateral, so they may come with a higher interest rate.
    • Lines of credit: A high-net-worth individual could work with a private bank to take out a line of credit specifically for the purchase they are currently focused on.
    • Mortgages: A high-net-worth individual could take a mortgage loan out and make monthly payments similar to a traditional real estate transaction.
    • Structured finance solutions: This is when you “repackage” the cash being generated by an asset in a way that aligns with your investment strategy.

    Reasons High-Net-Worth Individuals Get Denied for Lending

    Just because you’re a high-net-worth individual doesn’t mean that getting the money you need for a major purchase will be simple. Again, most people who fall into this category have unconventional financial situations and, as a result, present a great deal of risk for lenders. Lenders are notoriously risk-averse.

    There are several reasons why high-net-worth individuals get denied lending, such as:

    Inconsistent Income

    If someone has a stable source of income, it speaks to their ability to make consistent payments on any loan they take out. Whether you make $75,000 or $75 million yearly doesn’t change this. 

    Because high-net-worth individuals tend to have more inconsistent income, they are often considered riskier to lenders. If they cannot document their ability to repay the loans on time in some way, they could get outright denied.

    Lending Regulations

    In the aftermath of the worldwide economic downturn in 2008, lending regulations became far stricter in an effort to prevent high rates of loan defaults. Not only is someone’s ability to repay a loan more heavily scrutinized than ever, but so are property value assessments, equity investments, creditworthiness, and more.

    Stricter lending regulations may also make it harder for high-net-worth individuals to secure lending. If these individuals don’t have a W-2 form or pay stubs, as many of them don’t, they might not have the documentation required to fill out a loan application.

    A model house and car with deposit money.

    Strategies for Securing Loans for High-Net-Worth Individuals

    To avoid the challenges mentioned above, high-net-worth individuals will want to use secured loans whenever possible. This will help dramatically increase their overall chances of approval, which can put them well on their way toward accomplishing their larger financial goals and securing a real estate property.

    Use Asset-Based Loans

    Leveraging their assets is often one of the best ways for high-net-worth individuals to access the loans they need. All someone has to do is offer proof of sufficient assets to qualify for one of these non-conventional loans. 

    A lender may conduct their own valuation of an asset to ensure it is valuable enough to fund potential loan payments. So long as that is deemed acceptable, asset-based loans are a viable way to go.

    Consider Other Types of Mortgages

    People can experiment with other types of mortgages that go above and beyond having the necessary credit score to buy a house. One of these is called a no-income verification mortgage. With this, less documentation is required than a traditional mortgage, but the lender may require a higher down payment. For example, it might come with a 25% down payment requirement and a 10% (or more) interest rate. 

    There is also the option of an asset depletion mortgage, which is like an asset-based loan in that it bases someone’s eligibility on the value of their eligible assets instead of their income. Once you add up all qualifying assets, divide it by a set number of months to get a theoretical cash annuity stream. 

    You can also opt for other mortgage options like jumbo loans to help arrive at a funding source more aligned with your specific needs. A jumbo loan is used to finance real estate properties deemed “too expensive” for a regular loan. Anything above $726,200 for a single-family home in all states except Hawaii and Alaska would be considered a jumbo loan.

    Opt for Tailored Loans

    Finally, high-net-worth individuals can also opt for personalized loans from their lenders to help them qualify for the funding they need based on a strong credit score. This considers other factors outside traditional income to help ensure the real estate purchase goes off without a hitch.

    Get Approved for High-Net-Worth Lending

    Ultimately, ultra-high-net-worth lending isn’t as simple as people assume. Just because someone is worth a lot of money on paper doesn’t mean they have the verifiable income, the liquid assets, or even the credit score necessary to buy a house. 

    Thankfully, high-net-worth mortgage options do exist to allow these people to accomplish all of their financial goals. You just need to find the right partner who understands your unique situation and can offer you the best options. 

    At Griffin Funding, we’re proud to act as that partner many high-net-worth individuals need. If you have any additional questions about mortgages for high-net-worth individuals or need help securing a loan, Griffin Funding is here to help. 

    Frequently Asked Questions

    Are there risks associated with high-net-worth lending strategies?

    Yes. The larger the high-income mortgage amount, the more risk there is for lenders. Based on that, those lenders will have to apply stricter standards for high-net-worth individuals than they would for a more traditional loan. Asset-based loans are great, but those valuable assets must be protected.

    What challenges do high-net-worth individuals typically face?

    High-worth individuals can face several challenges when trying to secure real estate funding. Some of these challenges include: not having the credit score necessary to buy a house, not having a verifiable (or consistent) source of income, and increased lending regulations in the wake of the 2008 financial crisis.

    What factors should high-net-worth individuals consider when choosing a lending strategy?

    High-net-worth individuals should work closely with financial advisors and professionals to create a lending strategy that aligns with their unique financial goals, risk tolerance, and overall wealth management plan.

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.