An asset-based loan is one that uses assets as collateral instead of income. Whether you are a retiree with a small fixed income, a new business, or an established company that needs to maintain a high cash flow, the ease and benefits of asset-based loans and mortgages have made them a popular solution for borrowers in recent years.
Asset Loan Highlights:
- Qualified based on verified liquid assets
- Loan amounts up to $3 million
- Minimum 600 credit score
- No employment or income (Ability-to-Repay (ATR) is determined by assets and may be used in combination with bank statements in some cases if assets alone do not suffice)
- No tax return or 4506T required
- Debt to Income (DTI) Ratio not calculated
- Interest Only available
- As little as 10% down payment
- Cash out allowed
Griffin Funding takes a common-sense approach to underwriting asset-based loans for a painless application process.
What is an Asset-based Loan Agreement?
With an asset-based loan agreement, also known as an asset depletion loan, borrowers are granted a loan based on their assets. An asset-based loan or mortgage allows you to utilize the assets you have already invested in to secure the cash you need now.
Asset-based loans are perfect for retirees, investors, and/or self-employed borrowers that have assets on-hand.
How does an Asset-based Loan Work?
With this type of lending, you will be borrowing against your assets. The amount you are granted for your loan, known as the borrowing base, will be established based on a percentage of the assets’ value.
For your asset-based mortgage, you can use 70% of what you have in retirement and investment accounts and 100% of liquid assets, the value of your bank accounts.
The borrowing base and loan terms will be determined by the lender.
Calculating Your Asset-Based Loan
To calculate the qualifying amount of your asset-based loan, you will need to determine your maximum monthly loan payment. First, you need to calculate the total value of your available assets. Then, divide the total by the duration of the loan in months.
For example, you may have $600,000 in liquid verifiable assets and your total mortgage payment is $10,000 per month. Since you have 60 months’ worth of assets you would qualify and meet the ability to repay requirements.
Benefits of an Asset-Based Financing
As with any type of borrowing, there are pros and cons to an asset-based loan.
The primary benefit of an asset-based loan or mortgage is that you can make use of assets you already have, regardless of your current financial status. This means that your current income will not be factors for loan approval. Asset-based mortgages are designed for home buyers and homeowners who have significant verifiable assets and would benefit from alternative loan qualification.
Unlike a reverse mortgage, you are allowed to apply for an asset-based loan for a second home that is not your primary residence. While asset-based loans typically have higher interest rates, Griffin Funding has access to wholesale asset-based mortgage rates for the most favorable loan terms.
Small to mid-sized businesses that are growing rapidly can also benefit from asset-based home loans because this type of lending will allow you to maintain the working capital you need to keep up with the growth of your business. Business owners can do a asset-based cashout refinance home loan to fund their business.
Risks of Asset-Based Financing
The most significant risk of asset-based financing is that if you default on your payments, you can lose your assets. Additionally, depreciation of an asset’s value will affect your loan terms. For instance, if your home’s value goes down, more collateral will be required. This can lead to hardship if you have already turned over all or most of your assets when originally qualifying for the loan. Here at Griffin Funding, this is not a risk since we do not require you to “pledge” your assets like most banks do.
How to Get an Asset-Based Loan
To secure an asset-based loan or mortgage, you must apply with a lender. To apply for the loan you will need to identify the assets you will offer as collateral and submit any requested documentation. Once the lender performs an initial review of your application and determines that you are a good candidate for an asset-based mortgage, they will present you with a preview offer and require you to make a preliminary commitment before they perform a complete review of your assets. Once your assets are fully audited, you will receive your approval and funding for your loan.
What is Considered an Asset for a Loan?
The types of liquid assets that can be used as collateral n are checking accounts, savings accounts, certificates of deposit (CDs), money market accounts, mutual funds, stocks, and bonds. While in most cases several assets will be needed for collateral, there may be instances where a single asset will suffice. In some cases, asset statements alone may be used by high-net-worth individuals for qualification.
Most importantly, the assets presented for your loan must be easily convertible into cash.
Collateral for Your Asset-Based Mortgage
For retirees, assets that can be counted toward your collateral include:
- Bank accounts (checking or savings)
- CDs (certificates or deposits)
- Investment accounts (stocks, bonds, and mutual funds)
- Money market accounts
It is important to note that your assets cannot currently be promised to another lender.
Secure Your Asset-based Mortgage or Loan
Griffin Funding streamlines the process for asset-based mortgages and loans by using cutting-edge technology while providing 5-star service. Our goal is to leverage the value of your assets and minimize your interest rate for the best asset-based loan terms.