Asset-Based Loans & Mortgages

An asset-based loan or asset utilization loan uses assets as 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. 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 are perfect for retirees, investors, and/or self-employed borrowers that have assets on-hand.

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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.

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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.

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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. You are allowed to apply for an asset-based loan for a second home that is not your primary residence. Business owners can do an asset-based cashout refinance home loan to fund their business.

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What is Considered an Asset for a Loan?

The types of liquid assets that can be used as collateral 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. Most importantly, the assets presented for your loan must be easily convertible into cash.

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Collateral for Your Asset-Based Mortgage

For retirees, assets that can be counted toward your income include Bank accounts (checking or savings), CDs (certificates or deposits), Investment accounts (stocks, bonds, and mutual funds) and Money market accounts.

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Benefits of Asset Based Loans

  ➤ Qualified based on verified liquid assets

  ➤ Minimum 620 credit score

  ➤ No employment or income*

  ➤ No tax return or 4506T required

  ➤ Debt to Income (DTI) Ratio not calculated (in most cases)

  ➤ Interest Only available

  ➤ As little as 20% down payment

  ➤ Cash out allowed

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  * 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