Though most potential homeowners are most familiar with traditional mortgages where the property being purchased serves as collateral for the loan, this is not the only type of mortgage that is available. One alternative form of mortgage that you may qualify for is the asset-based mortgage; in these loans, the mortgage is not guaranteed by the property, which is being purchased but is instead secured by other assets, which the borrower provides. There are some advantages to choosing an asset based mortgage loan over a traditional mortgage, though this loan type comes with some restrictions as well. Here is a look at the basics of an asset based mortgage, so as to help you determine whether or not one of these loans is right for you.
Asset based mortgages can be very useful for individuals that have little or no credit as well as those who have bad credit. While in most cases these individuals may not be able to qualify for a traditional mortgage loan, the value of the assets that they offer for collateral should be enough to qualify them for an asset-based mortgage regardless of what their credit rating might be. This can be very useful for those who are trying to purchase their first house while still trying to start out financially. It is also useful for those who have run into financial problems in the past and anybody that is trying to reestablish their credit now that they have gotten back on their feet. Though credit is taken into account, for most asset based mortgage lenders it is not nearly as important as it would be for most other types of loans.
Another difference between asset based mortgages and other mortgage loans is that in many cases there is no down payment required when securing the loan. Though the borrower still has to pay a portion of the total cost of the property, the loan itself will not contain many of the same costs that taking out a traditional mortgage would entail. Though the availability of this specific feature of asset-based mortgages may vary from one lender to another, a number of lenders offer the no down payment feature as one of the attractions of this type of loan over mortgages that are more traditional. The fact that the collateral for the loan is worth more than the amount that is being borrowed and does not require the lender to find a buyer for the house or other property in order to make their money back greatly reduces the need for a down payment or other forms of payment when the loan is issued.
Unlike most mortgage loans, those which are based off of external assets may not have the same income requirements that are required by more traditional loans. Some individuals who take out an asset based mortgage will only apply a portion of the borrowed money toward the purchase of a house or other property itself, keeping anywhere from five to fifteen percent of the amount set aside to assist in repaying the loan itself. This can be especially useful when trying to guarantee that you will be able to afford the mortgage payments if you are worried about the possibility of layoff or may be moving to a new area where you might not be able to locate a job immediately. Though setting aside some of the borrowed money can mean that you may have to borrow more than you actually need, the buffer amount can help you to avoid a default and it should make the overall loan amount much easier to pay back.
Asset based mortgage loans do have their disadvantages, of course. In most cases these loans cannot be taken out for the full amount that you will need to purchase the property. Most asset-based mortgages can only be taken out for fifty percent of the property’s total value or less, though some lenders allow the loan to be for up to sixty-five percent or higher. This is because of the high value of homes and similar property, as well as the fact that those with little credit or who have had bad credit in the past are more likely to default on their loan payments than individuals who have established good credit.
Many asset-based mortgages are used in the purchase of homes and property that are going to be resold after restoration or that are being purchased at a discounted rate; the borrower in these cases is hoping to finalize the sale of the property before the loan is due in full. Though this can be risky since not all homes sell quickly, when it works it allows them to repay the loan easily while still making a sizeable profit off of the property in question.