There are a growing number of mortgage options these days to get non-traditional borrowers into homes. This is also the case for investors, who can find it extremely difficult to qualify for loans.
As part of its product portfolio, Velocity Mortgage Capital offers Asset-Based Investment Property Loans, flexible loans that are based on the value of the property itself, as opposed to the financial profile of the borrower.
"Some people have an easier time qualifying for an asset-based mortgage," said Michael Oddi, Velocity's Chief Marketing Officer. "Because the asset itself is basically guaranteeing the loan."
Many investors don’t have a steady stream of income from their investment. Sometimes that’s because of unstable rental activity in a particular property, or sometimes, particularly for those investors who engage in fix and flip activity, the income is seasonal because the renovations can’t take place during certain times of the year. In either of these instances, the profits from the investment are a source of income, but an inconsistent one—one that is not looked upon favorably by bank lenders.
Direct portfolio lenders, like Velocity, own and continue to service their mortgage portfolios. "Since we lend our own money and are not a regulated depository, we have the freedom to set our own underswriting rules, Oddi added.
For example, if an investor has a credit score that’s below 650 because they haven't established a credit history for their business, Velocity has the flexibility to suggest a lower LTV ratio and a higher down payment depending on the type of property in order to mitigate their risk of approving the loan. Although the borrower might have a bit more skin in the game, they’re able to get the funding they need to complete the deal and acquire the property.
The goal, however, isn’t to stay with the loan forever. Velocity essentially provides a stepping stone to a more conventional bank loan with a lower interest rate once the borrower has established the necessary credit and income history. A good broker enters their client into an asset-based loan because the property presents a good investment opportunity, but also follows up with a plan, i.e., advising that the client cure their credit issues and graduate to a more favorable long-term financing solution. Brokers who practice this approach add value by offering their borrowers viable solutions to short-term business problems.
Velocity offers an asset-based "Flex-Perm" loan that is specifically designed for this purpose. It features an initial fixed rate term followed by a variable rate. If investors aren’t ready or able to move to a traditional bank loan at the end of the fixed-rate period, they’re not forced out of the loan or into a balloon payment as is often the case for many “hard money” lending situations. Instead, they can simply keep making the payments until such time as they’re ready to move on. These loans are flexible and can be permanent if necessary.
The Flex-Perm loan is an alternative to “hard money” loans, which are often expensive and used in cases where investors need cash immediately as to not lose out on a property. But Oddi says that if investors have just a little bit more time—anywhere from a week to a month—they can take advantage of Velocity’s loan options, funded for sometimes half the price they would pay for a “hard money” loan.
“We’re not a permanent solution, but asset-based lending allows people who normally wouldn’t qualify for a bank loan to get into a property and not miss the opportunity,” Oddi said.
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