Understanding Asset Based Mortgage Loans and Their Benefits

Asset-based mortgage loans are a type of financing that allows homeowners to borrow money using the equity in their property as collateral. This can be a more attractive option than traditional mortgages, especially for those who need access to funds quickly.

One of the benefits of asset-based mortgage loans is that they often have lower interest rates compared to traditional mortgages. This is because lenders view the property as collateral, reducing their risk and allowing them to offer more favorable terms to borrowers.

In addition to lower interest rates, asset-based mortgage loans can also provide borrowers with more flexible repayment terms. This can be particularly helpful for those who need to access funds for a specific purpose, such as paying off high-interest debt or financing a major home renovation project.

An asset based mortgage creates an 'income stream' from your assets by depleting them over the term of the mortgage. It's how we qualify you for a mortgage despite not having traditional income.

You can use your liquid assets to qualify for a mortgage, rather than investing all your money in a home upfront. This way, your assets can keep compounding and growing your earnings while you invest in a home.

At Fidelity Funding Mortgage Corp, they're happy to help you choose the mortgage that's right for you. They're experts in unconventional lending programs, including asset based mortgage loans.

If you're living off of your liquid assets and are looking to purchase, refinance or get preapproved to purchase a home anywhere in the state of Florida, they'd love to help. Simply give them a call so they can run some numbers for you and answer all your questions!

An asset-based mortgage loan works by leveraging the value of your personal assets to secure financing. The amount you can borrow is determined by the borrowing base, a percentage of the value of your assets.

The borrowing base helps the lender assess how much they can confidently lend you based on the strength of your asset pool. To determine the loan terms, the lender will evaluate the value of your assets and assess your financial situation.

Your total assets are divided by 360 months (the number of months in a 30-year mortgage) to calculate the total amount of your assets. If you're 59.5 and older, you can use 100% of your liquid assets, such as bank accounts. If you're less than 59.5, retirement funds are calculated at 50% of face value.

The asset-based mortgage amortizes your assets after the down payment, closing costs, and required reserves. This means it spreads out your assets over the mortgage term to determine your eligibility for a loan.

Here's a breakdown of how the loan-to-value ratio (LTV) works:

The more liquid your collateral, the more likely you are to receive higher funding amounts and lower business loan rates. This is because lenders prefer to lend on highly liquid assets that can be easily converted to cash if you default on your loan.

To qualify for an asset-based loan, you'll need to determine your maximum monthly loan payment and calculate the total value of your available assets.

Your total mortgage payment should not exceed the amount of your available assets. For example, if you have $600,000 in liquid verifiable assets and a total mortgage payment of $10,000 per month, you would qualify.

You can calculate the qualifying amount of your asset-based loan by dividing the total value of your assets by 5, 7, or 10 years, depending on the asset-based loan program.

Here's a breakdown of the required down payments for different asset-based mortgage programs:

You'll also need to meet the credit score requirements for each program, ranging from 660 to no credit score requirement, depending on the program.

SOFR is the Secured Overnight Financing Rate, an index that calculates a weighted average of the interest rates that major financial institutions charge for overnight loans. This index is used to determine the interest rate on certain types of loans, including asset-based loans.

The SOFR rate is based on the average interest rate charged by major financial institutions for overnight loans, and it's updated daily. This means that the interest rate on a SOFR loan can change frequently, but in a predictable way.

One of the benefits of a SOFR loan is that the interest rate can potentially be lower than fixed-rate loans. However, it's also possible for the rate to rise, so it's essential to understand how SOFR loans work before making a decision.

Here are some common types of SOFR loans, which can help you choose the right option for your needs:

To calculate the qualifying amount of your asset-based loan, you need to determine your maximum monthly loan payment. You'll also need to calculate the total value of your available assets.

The total value of your assets is then divided by a specific time frame, depending on the asset-based loan program. This could be 5 years, 7 years, or 10 years.

For example, if you have $600,000 in liquid verifiable assets, you can use this to qualify for a loan. Your total mortgage payment is $10,000 per month, and you have 60 months' worth of assets, which meets the ability to repay requirements.

To qualify for a mortgage using your liquid assets, you'll need to have enough assets to deplete over the term required by the mortgage program.

You'll need to meet the requirements for the specific loan program you're applying for. For conventional loans, you'll need a 3% down payment for first-time homebuyers and 5% for subsequent home buyers. A good credit score is also required, which can vary, but most borrowers need a 660 credit score or higher.

The type of loan you're applying for will also impact the requirements. For example, the Private Client Portfolio loan requires a larger down payment of 20% - 25%, but there is no credit score requirement for well-qualified applicants.

Here's a quick rundown of the requirements for different loan programs:

Each loan program has its own set of requirements, so it's essential to choose the right one for your situation.

Asset-based mortgage loans offer a unique financing option for those with substantial assets but challenging financial situations. One of the main benefits is that approval is based on the value of your assets rather than your tax returns or income level.

You can qualify for a loan amount of up to $3 million, which is substantial financing. Additionally, asset-backed loans can be used for purchasing second homes and investment properties.

One of the downsides is that not all assets qualify, such as non-liquid assets like inventory or machinery. This means you'll need to have assets that are easily liquidated to secure the loan.

Interest rates for asset-backed loans are often higher compared to traditional mortgage rates. This is because the lender is taking on more risk by not requiring income verification.

Despite the higher rates, asset-backed loans can offer flexible financing options. For example, you can secure a loan with a relatively modest down payment, starting at 20%. You can also access the equity in your assets for other uses, such as funding renovations or investments.

Here are some key benefits and drawbacks of asset-based mortgage loans:

Overall, asset-based mortgage loans can be a good option for those who have assets but struggle with income verification. However, it's essential to weigh the benefits against the drawbacks and consider your individual financial situation before making a decision.

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.

For self-employed individuals, bank statement loans are a great option. These loans use bank statements to verify income instead of traditional documentation, allowing borrowers to qualify based on their actual cash flow rather than tax returns.

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 can be a good option if you can meet the qualification criteria. They typically offer highly competitive interest rates and more favorable terms, but require a strong credit score and proof of consistent income.

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.

Here are some of the alternatives to asset-backed lending:

If you're not sure about asset-backed lending, there are other financing options to consider. Bank statement loans are ideal for self-employed individuals, using bank statements to verify income instead of traditional documentation.

These low doc loan options allow borrowers to qualify based on their actual cash flow rather than tax returns. This can be a big advantage for self-employed individuals who have irregular income.

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 can be a good option if you can meet the qualification criteria. They typically offer highly competitive interest rates and more favorable terms, but require a strong credit score and proof of consistent income.

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.

Here are some of the alternative financing options summarized:

Flex Home Loans offer alternative mortgage options for those with lower credit scores. Our Flex Home Loans program gives low credit borrowers a second chance with more flexible guidelines.

Loan amounts can be as high as $2.5 million, and the loan can be amortized over just 84 months. This means you can qualify for a home loan even if you have limited income.

Using the Flex Home Loans program, you can calculate your monthly qualifying income based on your assets. For example, if you have $1 million in net assets, you'd have $11,904 in monthly qualifying income.

There's also an asset matching loan option, which allows you to borrow up to the value of your assets. If you have $500,000 in assets, you can borrow up to $500,000 with this loan.

The Private Client Portfolio Loan with Asset Depletion offers even more flexibility. This loan allows you to borrow up to $20 million and uses a proprietary income calculation model.

Asset-based lending and cash flow lending are two distinct options for businesses looking for financial support. Asset-based lending allows you to borrow money based on the value of your collateral.

In contrast, cash flow lending, also known as traditional business lending, doesn't necessarily require collateral. This means you don't need to put up assets to secure the loan.

Eligibility for cash flow lending is determined by your current and future finances, as well as your credit history. This can make it more challenging to qualify for, especially if you have poor credit.

Here's a quick comparison of the two options:

Overall, understanding the differences between asset-based lending and cash flow lending can help you make an informed decision about which option is best for your business.