All asset-based lenders have different criteria, but most share these things in common: (check with your lender upfront so you can factor their criteria into your project)
WHAT MATTERS MOST TO THE ASSET-BASED LENDER: The investor’s credit isn’t as important as the quality of the deal. Numbers matter, but in most cases, not your FICO score.
1. They require a first position mortgage or deed of trust.
2. Loan to value ratios are usually 65% of appraised after-repair value.
3. Loans cover the cost of acquisition and repairs.
4. Renovation funds are not usually distributed at closing. Draws are made upon completion of work.
5. The investor will need “Skin in the game” – meaning the investor is required to bring a minimum percentage or dollar amount to the closing table.
6. There’s always an origination fee and the percentages vary wildly. The can be as low as 1% and we’ve heard of some as high as 12% upfront.
7. Some lenders also require a Deposit to cover the appraisal, title and other legal work. If the loan doesn’t close, unused amounts are returned.
8. Loans are typically short-term which is a good thing because interest rates are higher than rates for owner occupant, traditional loans. Loan terms can be one-day transactional funds, or can have maturities from 6 to 60 months.
9. Some asset-based lenders offer longer-term loans for landlords with rates more favorable for buy and hold income properties.
Loan proceeds can be used for a variety of real estate related activities. Again, check with the lender for specifics. Potentials uses of funds include acquisition and improvements, pre-construction; some also offer refinances (rate/term & cash-out), recapitalizations, consolidations, repositions, partner buyouts and other opportunistic situations.
Everything above falls under the rule of C’s lenders use when making a decision on a funding request.
Asset-based lenders fund Non-owner occupied residential, industrial, multi-family, mixed-use, warehouse, office, retail, hotel, motel, churches, gas stations and land. Word of caution: just because they CAN doesn’t mean they will. Do your homework and make sure their funding model meets your needs.
