For people who have a lot of equity in other assets such as stocks or collectibles, borrowing against the value of those assets might be a good way to go to finance the purchase of a home. There are several major considerations with asset-backed loans. The primary one is leverage.
The idea of an asset-backed loan is that you have one or more assets with a value sufficient to borrow against for buying a home. You get a small portion of the value of those assets which is borrowed at a rate higher than typical loan rates. The lender has the right to liquidate the assets should you default on the loan. Why would you do all this?
Here are some reasons for using an asset-based loan to buy a home:
- You hold stocks or other investments that have lost value but could recover in the future
- You hold stock that could be sold in the future (e.g. pre-IPO)
- You have a collection of artwork or other collectibles you don't want to sell
Any of these reasons is good enough to use this tactic. You could even have other real estate investments that lost value but could recover in the future. Borrowing against those has both leveage and tax advantages. Consult your tax advisor for insights into what strategy is best to pursue.
I can recommend people who have experience in arranging asset-based loans. If this sounds like something you would be interested in discussing prior to buying a home, call me and I will refer you to well-qualified advisors on how these loans work.