Asset-Based Lending

Income and credit score requirements are a staple in the traditional world of mortgage financing. But sometimes what shows on paper doesn’t always reflect a borrower’s true financial capabilities. Many borrowers may not collect a regular income, but have plenty of wealth in the form of valuable assets.

For these types of borrowers, a traditional mortgage may not work. However, other forms of financing, like asset-based lending, can help these types of borrowers secure a loan to make a home purchase.

Let’s break down what asset-based lending is, how it works, the potential benefits and risks involved, and when it makes the most sense.

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What Is Asset-Based Lending?

Also referred to as a ‘true collateralized loan’, asset-based lending is a form of financing in which loans are secured by collateral instead of strictly cash flow or creditworthiness. For example, borrowers might collateralize their loan with any of the following assets:

Bank accounts
Money market accounts
U.S. Treasuries (maturity less than 1 year)
Stocks, bonds, & mutual funds
Retirement accounts

Lenders use these assets as security for the loan, which reduces their risk and may result in lower interest rates compared to unsecured loans. If the borrower defaults on the loan, the lender can liquidate the collateral to recoup funds.

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APR5.261%

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Who Benefits Most From Asset-Based Lending?

Asset-based lending is suitable for the following types of borrowers:

Retirees with large retirement savings but limited monthly income.
Self-employed individuals with fluctuating income but strong investment portfolios to leverage their assets instead of tax returns.
High-net-worth borrowers with substantial liquid assets who prefer not to sell their investments.
Real estate investors with equity-rich properties but high debt-to-income ratios.

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Types of Asset-Based Lending

Asset-based lending structures may vary depending on a borrower’s specific needs:

Asset Depletion Loans

Borrowers may qualify for a mortgage by converting their liquid assets into a calculated monthly income.

Asset Utilization Loans

Borrowers may qualify for a mortgage by using their liquid assets as proof of financial strength instead of traditional income.

Qualifying For Asset-Based Lending

Traditional mortgages tend to focus on documents like W-2s, tax returns, and pay stubs to help lenders verify a borrower’s income.

But many financially qualified borrowers — including the self-employed, business owners, and investors — either don’t have these documents, or their true earnings and wealth aren’t accurately depicted on these documents. Instead, lenders may look at other documents as a means of financial health.

Qualifying for asset-based lending typically requires verification of the following:

Asset Verification

Bank Statements:
- Checking accounts
- Savings accounts

Investment Account Statements:
- Brokerage accounts (including stocks, bonds, and mutual funds)
- Certificates of Deposit (CDs)
- Money market accounts

Retirement Account Statements:
- IRAs (Traditional and Roth)
- 401ks
- Pension statements

Personal Identification & Credit Verification

Government-Issued ID:
- Driver’s license
- Passport

Social Security Number: For credit report and identity verification

Credit Report Authorization: Minimum 620+ FICO score typically required

Property-Related Information

Purchase Agreement
Property Appraisal: To verify the market value of the property

Title Report: To verify property ownership and ensure title is free of liens

Homeowners Insurance: Required for closing

Asset Declaration

You may also be required to complete a form to confirm that the assets listed as collateral are not being used for borrowing and are liquid and accessible.

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What Assets May be Excluded From Asset-Based Lending Qualification?

Several assets are typically excluded in asset-based lending, either because they’re not liquid, not fully vested or transferable, difficult to verify, or outside the borrower’s control:

Equity in real estate
Restricted stock units (RSUs)
Business-owned assets
Irrevocable trusts
Charitable trusts/donor-advised funds
Foreign assets

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Pros and Cons of Asset-Based Lending

Asset-based lending can be an ideal loan option for borrowers who may not meet traditional lending standards, but they also come with potential drawbacks to consider.

Pros:

No income documentation required: With this loan option, there’s no need to produce W-2s, pay stubs, or tax returns, as long as you have verifiable assets.
Larger loan capacity: Eligible assets can significantly strengthen your borrowing power.
No need to liquidate assets: Only the assessed value of assets is considered, which avoids the need to liquidate assets.

Cons:

Higher interest rates: Asset-based lending tends to come with slightly higher interest rates compared to conventional mortgages.
Strict asset requirements: Only specific assets may be eligible for consideration.
Niche lenders: Asset-based lending is not offered by all lenders.

Asset-Based Lending vs. Other Non-QM Loans

Asset-based lending is one type of loan that falls under the umbrella of non-QM (Qualified Mortgage) lending. Other loan types are also included in this category, including bank statement mortgage loans. Here’s how asset-based lending and bank statement loans compare:

Feature

Asset-Based Lending

Bank Statement Loans

Income Verification

Based on value of liquid assets

12–24 months of deposits in bank accounts

Debt-to-Income Ratio

None with sufficient assets

Maximum 45% — 50%

Credit Score

Minimum 620+

Down Payment

Typically 15% – 25%

10% is generally acceptable

Best For

High-net-worth individuals

Self-employed

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FAQs

Who is a good candidate for asset-based lending?

Ideal candidates include high-net-worth borrowers, retirees, and investors with substantial assets but limited reportable income.

What types of assets can be used to qualify?

Commonly accepted assets include bank accounts, retirement accounts, stocks, bonds, and mutual funds.

Do I need to liquidate my assets?

No, while liquidity of assets is a plus, your assets remain undisturbed and don’t have to be sold to qualify.

Are credit scores considered?

Yes, while lenders focus on assets, they’ll still pull your credit report to verify your creditworthiness.

What’s the minimum down payment required?

Asset-based mortgages typically require at least a 15% down payment, depending on credit score and property type

What type of property can I use this loan for?

Asset-based mortgages may be used for various property types, including primary residences, vacation homes, and investment properties.

Where can I get an asset-based mortgage?

Asset-based loans are very niche and aren’t widely available. You’ll need to work with a specialized mortgage lender, like Sammamish Mortgage, to use asset-based lending to finance your next property purchase.

States we lend in

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Final Thoughts

Asset‑rich borrowers facing traditional income hurdles may find asset‑based mortgages a viable alternative, allowing for flexible approval based on wealth instead of pay stubs and W-2s. If you’re a retiree, investor, or high-net-worth borrower with substantial assets and unique lending needs, this mortgage option may be worth considering.

Need Financing?

If you’re looking to buy a home in the Pacific Northwest but don’t have the standard income documents for a traditional loan, we’re here to assist you. At Sammamish Mortgage, we offer various mortgage home loan programs for borrowers with unique lending needs in Washington, Oregon, Idaho, Colorado, and California. Check out our website to get an instant rate quote, or reach out to us today with any questions you have about your mortgage!

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Asset-Based Lending

Our Reputation Speaks For Itself

What Is Asset-Based Lending?

Find the Best Mortgage Deals for You

Who Benefits Most From Asset-Based Lending?

Types of Asset-Based Lending