Asset-Based Lending: Explore Asset-Based Loans for Real Estate

Asset-based lending provides an alternative route for individuals seeking to buy a home, especially those who may not meet the criteria for conventional loans. This type of financing through Griffin Funding is tailored to help borrowers by utilizing personal assets rather than traditional income or credit history.

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A home equity loan or line of credit is a 2nd mortgage that allows you to convert equity to cash without having to touch your existing 1st mortgage.

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    Table of Contents

    KEY TAKEAWAYS

    • Asset-based loans allow you to leverage personal assets, such as bank accounts and investment accounts, to secure a mortgage.
    • Asset-based loans do not require income verification and are ideal for self-employed individuals, those with non-traditional income sources, or retirees.
    • Alternatives to asset-based lending include bank statement loans, P&L loans, conventional loans, and DSCR loans, each of which caters to different financial situations and needs.

    What Is an Asset-Based Loan?

    An asset-based loan or asset utilization loan uses assets as income. Whether you are a retiree with a small fixed income or a self-employed borrower, the ease and benefits of asset-based loans and mortgages have made them a popular solution for borrowers in recent years. This type of financing is especially popular among those looking for an alternative to a no doc loan.

    Griffin Funding takes a common-sense approach to underwriting asset-based loans for a painless application process.

    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 utilization loans can serve as great mortgage options for retirees, investors, and/or self-employed borrowers that have assets on-hand.

    How Does an Asset-Based Loan Work?

    With an asset-based loan, you are essentially leveraging the value of your personal assets to secure financing. Here’s a breakdown of how this works:

    • Borrowing base calculation: The amount you can borrow is determined by the borrowing base, which is a percentage of the value of your assets. This base helps the lender assess how much they can confidently lend you based on the strength of your asset pool.
    • Types of assets: For asset-based mortgages, different assets are utilized in the following ways:
      • Retirement and Investment Accounts: Typically, up to 70% of the value from these accounts can be considered for the loan. This means if you have $100,000 in your retirement and investment accounts, you could potentially use $70,000 towards securing your loan.
      • Bank Accounts: You can use 100% of the value from your bank accounts. For example, if you have $50,000 in your savings or checking accounts, that entire amount can be factored into the loan process.
    • Determining loan terms: The final borrowing base and the specific terms of your loan—such as interest rates, repayment schedules, and overall loan amount—are determined by the lender. They will evaluate the value of your assets and assess your financial situation to tailor the loan terms to fit both your needs and their lending criteria.

    What Is Considered an Asset for an Asset-Based Loan?

    The types of liquid assets that can be used are checking accounts, savings accounts, certificates of deposit (CDs), money market accounts, mutual funds, stocks, and bonds. In some cases, asset statements alone may be used by high-net-worth individuals for qualification.

    The assets presented for your loan must be easily convertible into cash. Assets that can be counted toward your income include:

    • Bank accounts (checking or savings)
    • CDs (certificates of deposit)
    • Investment accounts (stocks, bonds, and mutual funds)
    • Money market accounts

    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 either 5 years, 7 years or 10 years depending on the asset-based loan program.

    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.

    Asset-Based Lending Example

    Let’s consider a business owner named Sarah who wants to buy an investment property, but struggles to qualify for a conventional mortgage due to significant tax write-offs. To invest in real estate, Sarah turns to asset-based lending as an alternative. She has $150,000 in her checking and savings accounts and $500,000 in her retirement and investment accounts.

    In this scenario, Sarah could qualify for a loan amount up to $500,000. This includes the full $150,000 from her bank accounts plus 70% of her $500,000 in retirement and investment accounts, which totals $350,000. By using asset-based lending, Sarah is able to secure the financing needed to pursue her real estate investment goals.

    What Is a 6-Month SOFR Asset-Based Loan?

    An asset-based SOFR loan is a valuable tool that can be used by high-net worth individuals to obtain funding for a new property purchase without having to show proof of income. In addition to this benefit, this type of loan has an interest rate that adjusts with the SOFR rate, which allows those with significant assets to potentially capitalize on lower interest rates without having to refinance.

    The Secured Overnight Financing Rate is an index that calculates a weighted average of the interest rates that major financial institutions charge for overnight loans. When a mortgage is tied to this index, it is possible to get a mortgage rate that will automatically adjust to the 30-day average of the SOFR index.

    With our 6 month SOFR Asset Utilization loan, you can take out an asset-based loan with a low-interest rate that’s locked in for a predetermined amount of time. Once that introductory period ends, your interest rate will begin to adjust every 6 months based on the SOFR index, meaning your rate could potentially rise or fall.

    We currently offer:

    • 6 month SOFR ARMs
    • 3/6 SOFR ARMs (fixed-rate for 3 years and then adjusted every 6 months after that)
    • 5/6 SOFR ARMs (fixed-rate for 5 years and then adjusted every 6 months after that)
    • 7/6 SOFR ARMs (fixed-rate for 7 years and then adjusted every 6 months after that)
    • 10/6 SOFR ARMs (fixed-rate for 10 years and then adjusted every 6 months after that)

    As you can see, you can choose from a number of 6-month SOFR asset-based loans based on your preferences. We also offer other SOFR loans, such as 6-month SOFR DSCR loans and 6-month SOFR bank statement loans.

    Pros and Cons of Asset-Backed Loans

    Asset-backed loans offer an alternative to conventional mortgages, particularly for those with substantial assets but challenging financial situations. They provide flexibility and opportunities for financing, though they also come with certain drawbacks.

    Pros:

    • Qualify based on your assets: Approval is based on the value of your assets rather than your tax returns or income level.
    • No employment or income required: No income verification is needed, which simplifies the application process for those with non-traditional income sources.
    • Loan amounts of up to $3 million: You can secure substantial financing, with loan amounts reaching up to $3 million.
    • Finance second homes and investment properties: Asset-backed loans can be used for purchasing additional properties beyond your primary residence.
    • DTI ratio not calculated in most cases: Your debt-to-income ratio is generally not a factor in the approval process.
    • Interest-only options available: Some loans offer the option to pay only interest for a period, which can reduce monthly payments.
    • Down payment as low as 20%: You can secure a loan with a relatively modest down payment, starting at 20%.
    • Cash-out allowed: You can access the equity in your assets for other uses, such as funding renovations or investments.

    Cons:

    • Not all assets qualify: Certain types of non-liquid assets, like inventory or machinery, cannot be used to secure the loan.
    • Higher rates than conventional loans: Interest rates are often higher compared to traditional mortgage rates.
    • Loan amount is limited to the value of your assets: The maximum loan amount is constrained by the value of your assets, which may not always meet your needs.

    How to Get an Asset-Based Loan

    To get an asset-based loan, you’ll need to follow a series of steps to ensure you meet the lender’s requirements and secure the financing you need. Here’s a step-by-step guide to help you through the process:

    1. Apply with a lender: Begin by finding a lender that offers asset-based loans or mortgages and submit an application.
    2. Identify your assets: Determine which assets you will use to qualify for the loan. These might include bank accounts, retirement funds, and investment accounts.
    3. Submit documentation: Provide the lender with the necessary documentation to verify the value and ownership of your assets.
    4. Initial review: The lender will conduct an initial review of your application and assets to determine if you are a good candidate for an asset-based mortgage.
    5. Receive preview offer: If the initial review is favorable, the lender will present you with a preview offer outlining potential loan terms. At this point, you can accept or reject the loan terms and rate offered to you.
    6. Complete asset review: The lender will then perform a thorough audit of your assets to confirm their value and eligibility.
    7. Approval and funding: Once the full review is complete and your assets are verified, you will receive final approval and the funding for your loan.

    What States Are Asset Based Loans Available in?

    Asset-Based Mortgage Loan Rates

    Alternatives to Asset-Backed Lending

    If asset-backed lending doesn’t suit your needs, there are several other financing options to consider. Each of these alternatives can be beneficial depending on your financial situation and the type of property you’re looking to purchase.

    • Bank statement loans: Ideal for self-employed individuals, these loans use bank statements to verify income instead of traditional documentation. This low doc loan option allows borrowers to qualify based on their actual cash flow rather than tax returns.
    • P&L loans: Profit and loss (P&L) loans are another option for self-employed mortgage seekers. They rely on the borrower’s business P&L statements to demonstrate income, offering a flexible alternative for those with irregular or seasonal income.
    • Conventional loans: If you can meet the qualification criteria, conventional loans can be a good option for purchasing a primary residence or investment property. They typically offer highly competitive interest rates and more favorable terms but require a strong credit score and proof of consistent income.
    • DSCR loans: Debt service coverage ratio (DSCR) loans are particularly advantageous if you’re interested in investing in rental properties. These loans focus on the property’s income potential rather than the borrower’s personal income, making them a suitable choice for real estate investors.

    Each of these alternatives provides different benefits and requirements, allowing borrowers to find the best fit for their unique financial situation and goals.

    Secure Your Asset-Based Mortgage Loan

    Griffin Funding streamlines the process for asset-based mortgages and loans by using cutting-edge technology and 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.

    Want to learn more about asset-based loans or explore other mortgage options? Download the Griffin Gold app to explore financing options, manage your finances, access smart calculators, privately search for homes, monitor your credit, and much more.

    Whether you’re buying a primary residence or an investment property, an asset-based loan can help. Fill out an online application today to take the first step towards buying your next home.