Asset-Based Loans

An asset-based loan is where the loan is made based on the value of the property rather than the financial profile of the individual. Some people call these kinds of loans asset-based loans and others call them hard-money loans. Even though the terms are different, the concept is the same.

Since the lender is more concerned about the value of the property, they will usually do a very limited check of your financial profile. They may pull your credit, but that is about all they will do on you personally.

The value of the property is the number-one thing that an asset-based lender will look at. They do not want to over-finance the property and so they usually will only lend up to 65% of the value of the property. If the property needs repairs, they will also include that money into the loan as long as it does not surpass 65% of the value.

For people looking to get into a property with no down payment, a hard-money loan is an option, as long as you are buying the property at a significant discount of its true value. Many investors also wonder how to cover the cost of renovating a property and this is a potential solution for the repairs as well.

When you are interviewing asset-based lenders, there are several questions you want to ask them:
• Do they lend based on the before repair value or the after repair value?
• What is their maximum loan to value (LTV)?
• How many points do they charge (fees for doing the loan)?
• What is their normal loan term?
• What interest rate do they charge?

These questions will give you an insight into how they work and if it will be a solution for your deal. You always want to find a lender that will loan based on the after repair value (ARV) as it will be much easier to find deals that meet that criteria.

Hard-money lenders are very easy to find. A simple search in Google will help you find many in your area that you can talk to. Do a search for “(your state or city) hard money lender” and you will find plenty of results. Then it is just a matter of talking to them to find out what their lending criteria is, since each lender is different.