Your Guide To Asset-Based Lending For Rental Property

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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Are you an aspiring or current real estate investor seeking ways to level up your earnings? Then, asset-based lending could be a viable option. In this guide, you’ll learn more about how it works, key advantages to keep in mind, asset-based loan options and where to apply for funding. 

Traditional and NQ Mortgage Loans

 
Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

What is Asset-Based Lending in Real Estate?

Asset-based lending is a form of financing that determines your eligibility for funding by the value of the real property you plan to purchase. The lender will also include the amount of projected rental income or cash flow, along with property-related expenses, like insurance, maintenance and taxes, when deciding on a loan amount. However, unlike traditional mortgage products, your employment history and income aren’t considered during the application review process.

The investment property is used as collateral to secure the loan. And in most instances, lenders extend loans with one to five-year terms to give the borrower an ample amount of time to sell the property to turn a profit. Or you can choose to refinance the loan into a traditional 15- or 30- year mortgage product. 

You’ll have to bring money to the table to cover closing costs and the down payment. For the latter, some asset-based loans require as little as 5 percent down, but it varies by lender. 

Advantages of Asset-Based Lending 

There are several benefits of using asset-based lending to grow your portfolio of rental properties. 

Faster Processing, Closing, and Turnaround

It typically takes far less time to close on a loan when using asset-based financing than it does with a traditional mortgage product from a bank or credit union. This results from less stringent underwriting guidelines, making it easier for the underwriter to review the file in less time and issue a final lending decision. Furthermore, private lenders have more leeway and aren’t bound by the same restrictions as traditional lenders offering conventional loans and government-backed loans. 

Less Documentation and Paperwork

You can also avoid mountains of paperwork and financial documentation that you’ll otherwise need if applying for a traditional mortgage product.  

Low Down Payment Requirements

It’s possible to get approved for an asset-based loan with a down payment as low as 20 percent. However, there are lenders that may be willing to loan 100 percent of the property value, but you’ll likely get less favorable terms, including a higher interest rate. 

Traditional and NQ Mortgage Loans

 
Are you looking to finance a home too expensive for a conventional loan? An Angel Oak Jumbo Loan can provide financing for up to $3.5 million.

Not Dependent on Personal or Business Assets

As mentioned earlier, asset-based loans are based on collateral and your company’s investment strategy to generate more income. This means the amount of your personal or business assets isn’t necessarily a deal-breaker. 

Can You Use Asset-Based Lending for a Rental or Investment Property? 

Yes, you can use an asset-based loan to acquire a rental or investment property. It’s also commonly used for fix and flip properties that you only plan to keep for the short term. 

How To Qualify for Asset-Based Lending for a Rental Property 

Eligibility criteria vary by lender, but here are some tips to keep in mind before applying: 

  • As mentioned earlier, the lender focuses on property values and not credit history when deciding if you qualify for a loan. So, working tirelessly to improve your credit score won’t help you when applying for asset-based financing. 
  • The lender will likely request extensive documentation that outlines your plan to effectively manage and generate positive cash flow with the property. 
  • Your investment objective, projected earnings and exit strategy play a significant role in the loan amount and terms you’re approved for. 
  • If you can effectively plead your case for a loan and submit all the required documentation promptly, it’s possible to get approved, closed and funded in just one to two weeks. 

Where To Apply for Asset-Based Lending

When you’re ready to apply for funding, consider Angel Oak Home Loans. It’s a full-service lender focused on providing innovative mortgage loan products. 

The Asset Qualifier Home Loan is a viable option if you’re looking to purchase a rental property. Loan amounts of up to $3 million are available to investors with at least $500,000 in assets post-closing. 

Checking accounts, savings accounts, retirement accounts and stocks are all eligible for inclusion in your funding application if they’re seasoned for at least six months. If you’ve experienced bankruptcy, foreclosure or short sale, the seasoning period increases to five years. 

There are no debt-to-income (DTI) requirements, and you won’t have to worry about providing income and employment information. 

Inquire today with Angel Oak Home Loans to learn more about the Asset Qualifier Home Loan. Simply complete the brief form found here to learn more.

Angel Oak

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