New York, NY · Member since 2017 · 12 posts · 1 vote
I have a property that we're working on closing. It's a rental. We're trying to get a W2 mortgage because it's cheaper but we have been approved for Asset Based Loans. The main issue with these loans is they're all in the 4.5 to 5% interest range with 2-3 points as fee and large down payments needed to make them work. W2 is at least 1 point lower.
My question that I'd love to get feedback on is when do the Asset Based Loans make sense? I see people taking 6-7 or even 8% sometimes. Is this because there's that much profit/equity in the project? Are these mostly fixer uppers? It seems like you need to be getting 10 to 15% off market price and have a good chuck of profit in a fixer upper for these loans to make sense? For our project 5% is about the limit to still have profitability.
I was wondering what others experiences are with ABL type and commercial loans.
This is a good question, @Christopher C. Welber! I'd say it is more about the borrower than the asset. if you can buy a property using a conventional loan or a commercial loan you should . . . all things being equal.
However, if you are unbankable, or if the asset based loans are offering something that is "safer" than the other two loan categories, then they can have some advantages that offset the fees. For example, right now I'm seeing commercial loans in my area between 4-5.5% on 25-year amortizations, but the rate is fixed only for 3-5 years. So, if you believe that interest rates will be significantly higher in 3-5 years then you may be tempted to pay 3% in points NOW in order to have an asset based lender lock the rate for a full 30 years.
There are probably some other use cases to consider, but these seemed the most relevant :)
I have a property that we're working on closing. It's a rental. We're trying to get a W2 mortgage because it's cheaper but we have been approved for Asset Based Loans. The main issue with these loans is they're all in the 4.5 to 5% interest range with 2-3 points as fee and large down payments needed to make them work. W2 is at least 1 point lower.
My question that I'd love to get feedback on is when do the Asset Based Loans make sense? I see people taking 6-7 or even 8% sometimes. Is this because there's that much profit/equity in the project? Are these mostly fixer uppers? It seems like you need to be getting 10 to 15% off market price and have a good chuck of profit in a fixer upper for these loans to make sense? For our project 5% is about the limit to still have profitability.
I was wondering what others experiences are with ABL type and commercial loans.
Thanks again BP People!
Rates on asset based loans are in the 4's if you have decent credit and have a 30 year fixed amortization. You can get 80% loan to value on a purchase or rate and term refinance and 75% on a cash out using the appraised value after 6 months of ownership. These do carry 2-3 points generally. Lots of people, with the tightening of guidelines on Fannie/Freddie loans, are going the easier route and closing in 30 to 45 days. The thing that takes the longest right now is the appraisal.