In asset-based residential lending, an individual can use an assets to show the ability-to-repay a loan instead of income. This can be a beneficial lending option for those with limited income, retirees, and small business owners, to name a few. That’s because individuals can conveniently secure asset-based home loans using up liquid assets to qualify rather than large amounts of capital.
Perhaps you’re not sure whether or not an asset-backed loan is the right option for you. In that case, read on to learn more about asset-based loans, such as how they work, how you can secure one, and the different types available.
What Is Asset-Based Lending?
If you need cash quickly, potentially without tax implications, an asset-based loan allows you to secure a mortgage by using your assets as income. With an asset-backed loan or mortgage, the lender gives money to the borrower based on the value of assets and then converts those assets into monthly income using a formula. Here are a few examples:
- $1,000,000 in cash / 84 months = $11,904.76/mo in income for qualifying purposes
- $1,000,000 in stocks x 80% / 84 months = $9,523.81/mo in income for qualifying purposes
- $1,000,000 in retirement x 70% / 84 months = $8,333.33/mo in income for qualifying purposes
You can use any combination of the cash, stock or retirement formulas above to qualify.
- Bank accounts
- Certificates of deposit (CDs)
- Investment accounts, stocks, etc.
- Money market accounts
- Retirement accounts
Asset-based lending provides borrowers with flexibility by not having to access their investment and/or retirement accounts that may have early withdrawal penalties and tax implications. One important detail to note is that Griffin Funding does not require you to pledge your assets as collateral.
How Does an Asset-Based Loan Work?
As we’ve said, an asset-based loan is a type of loan that uses your assets as income rather than one’s actual income on their tax return and/or W2. With traditional loans, the size and type of loan is generally dictated by the income and financial situation of the borrower. However, if the borrower can’t demonstrate that they have the income required to merit the kind of loan they’re looking for, they may turn to an asset-backed loan instead. This allows the borrower to use a physical asset as income.
As far as asset-based loans are concerned, the types of liquid assets that can be utilized include checking accounts, savings accounts, certificates of deposit (CDs), money market accounts, mutual funds, stocks, bonds and retirement accounts. Whatever asset the borrower decides to use, it’s essential that the asset can be easily converted into cash.
Asset-based loans allow individuals to leverage their physical assets as income. The size of an asset-based loan will depend on the value of the assets and the type of assets. Depending on the size of the loan they’re seeking, the borrower may provide the lender with proof of one or more assets.
How Do I Get an Asset-Based Loan?
The asset-based lending process is fairly straightforward. To get started in securing an asset-based loan with Griffin Funding, you can follow the steps laid out below:
- Discovery meeting: In the first meeting, a mortgage strategist will research the best loan options for your specific situation.
- Loan application: Loan application can be completed via phone or through our secure online portal.
- Lock in your rate: Once your application is completed, you can lock in your interest rate.
- Application & disclosures: You can sign the initial application and disclosures through our secure online portal.
- Supporting documentation: We will provide you with a list of necessary supporting documentation we need from you to continue with the process.
- Loan process: Our team will gather your paperwork and underwrite the loan.
- Appraisal & pest inspection: We will order an appraisal of your current or potential home and help you find a pest inspector if necessary.
- Loan approval: We will sort through and finalize your loan on our end.
- Final loan document signing: After reviewing necessary documents, you will be able to sign the final loan document in the presence of a notary.
- Loan funding/recording: After a three-day waiting period, your loan can be disbursed.
Our skilled loan officers use cutting-edge technology to make the lending process as convenient as possible for you.
What Are the Requirements for an Asset-Based Loan?
In order to qualify for asset-based loans, you must be able to meet certain requirements. Mainly, you must own liquid assets that you can use to show as your ability-to-repay the loan. Applications for asset-backed loans are reviewed on a case-by-case basis, and are approved at the discretion of the mortgage lender you apply with. Strong candidates for asset-based loans often include retirees, self-employed individuals, and small business owners who have high-net-worth (HNW).
What Are the Types of Asset-Based Loans?
There are two primary types of asset-based loans: purchase loans and refinance loans. If you intend to build or buy a home, then you would take out a purchase loan to do so. On the other hand, if you want to take advantage of lower interest rates or a change in market conditions, then you may be interested in refinancing your mortgage. In this case, you would take out a refinance loan.
Asset Loan Highlights
Asset-based loans offer an array of unique benefits when compared with traditional lending options. Some of the most significant benefits that asset-based loans offer include:
- The ability to qualify for a mortgage using your assets as income.
- Flexibility in the type of assets used for your loan.
- The opportunity to finance a home that’s not your primary residence.
With these advantages, asset-based loans can be a good option for certain borrowers. For instance, retirees, self-employed workers, and entrepreneurs who have assets on hand can potentially access more capital than they would with a traditional loan.
Are There Any Risks of Asset-Based Loans?
Virtually every type of loan comes with certain risks, and asset-based loans are no different.
If the assets you put down as collateral depreciate in value over the life of the loan, this can impact the loan terms. For instance, if the value of your home drops or your investment account takes a turn downwards, the lender may require you to put down more collateral. If you don’t have more collateral to put down, this can lead to financial hardship.
The good news is that when you work with Griffin Funding, you won’t have to worry about turning over more collateral during the life of your loan. Unlike most financial institutions, we don’t require borrowers to pledge your assets and take the kind of risk that could land you in a tough situation.
Other Loan Programs Offered By Griffin Funding
While asset-based loans offer unique benefits, perhaps it isn’t the right option for you. In that case, Griffin Funding offers a range of other loan options that may better suit your particular situation. Below are some of the other lending programs we offer:
- Fixed-rate mortgages
- Adjustable-rate mortgages
- Reverse mortgages
- Non-QM mortgages
- Bank statement loans
- USDA loans
- Foreign national loans
- Interest only loans
- VA loans
- Foreign national loans
- Recent credit event loans
- Debt-Service-Coverage Ratio loans
We encourage you to explore the wide variety of loans we offer to determine which is right for you. If you need help understanding these loans and comparing the pros and cons of each, contact us to speak with one of our knowledgeable mortgage specialists who would be happy to assist you in evaluating your options.
Find Out If You Qualify for an Asset-Based Loan
If you want to learn more about asset-based loans, reach out to Griffin Funding. We can help you find out if you qualify for an asset-backed loan. If you qualify, we can guide you through the loan process. If for some reason you don’t qualify, we can provide you with alternative options that you may find valuable instead.
To determine whether or not you qualify for asset-based lending, start by completing an application online. You can also call us at (855) 394-8288 and speak with one of our qualified loan specialists. We’re happy to answer any questions you may have and get the loan process started when you feel ready.