Self Directed IRA Non-Recourse Loans to Invest in Real Estate

How to Get a Loan For Your IRA.

What is an IRA Non-Recourse Loan?

A non-recourse loan is a loan where the IRA account holder is not personally liable. The loan is to the IRA not the individual IRA owner and it is secured by collateral, usually real estate. In the event of foreclosure or default, the lender can only pursue the IRA assets. Because it is a higher risk loan for the lender, these loans have higher interest rates.

How Do Non-Recourse Loans Work?

When you have a small IRA or just don’t have enough funds to invest in real estate, your IRA can get a non-recourse mortgage loan. The non-recourse loan is a loan in the name of the IRA, secured by collateral (usually the property being purchased). The loan is based on the value of the real estate investment and typically the IRA holder's credit does not come into play for the IRA to qualify in most cases.

This type of loan is different from personal loans, auto loans, or any other money loan. For example, in the case of the car loan if the borrower defaults, the lender can seize the car.

In the event of default or foreclosure on the non recourse loan, the lender cannot take legal action or go after the IRA owner’s other assets. The lender can only seize the IRA asset. You can see why this would be an attractive option for Real Estate IRA Investors.

How do I get a non-recourse loan for my IRA?

Most banks do not offer these types of loans. You must shop around for a non-recourse IRA lender, as every lender has different requirements, restrictions, and terms. Here is a more detailed article on what non-recourse lenders require.

Finding the Right Lender

There are many things to consider when obtaining a non-recourse loan such as IRA taxes. Here are some basic questions to ask when researching non-recourse lenders:

  • What are the terms? Do they change?
  • What is the LTV?
  • How do you calculate the cash flow projection?
  • What is your formula?
  • How is rent determined?
  • Do you require a credit check for me personally?
  • What are your fees? How do you charge?
  • Am I limited to certain types of properties?

Typical Fees

As with any other real estate purchase, there are closing costs. These costs must come from the IRA and not your personal funds. You can request an estimate of potential costs from your lender in advance. 

Also, there will be transaction fees from your custodian for the purchase of the investment and loan. 

4 Easy Steps to Get Started With a Non-Recourse Loan

We always recommend that you open and fund your account before you borrow the money. Moving funds from one custodian to another can take time and may delay your purchase.  

1. Open and fund a self-directed IRA. You will need to provide the lender a statement for your IRA.

2. Determine your SDIRA investment strategy. Will you need to bring in partners? Are you using and IRA LLC? Are you investing in residential properties or commercial properties?

3. Find a non-recourse lender. Remember, this is a loan to your IRA— therefore, once you have approved the loan terms, IRAR Trust signs all documents on behalf of your IRA.

4. Fund the investment. For IRAR Trust to fund the investment, we’ll need a copy of the loan documents, as well as the investment paperwork.

Once your deal has funded, set up payments to the non-recourse lender from your IRA not your personal bank account. The payments must come from the IRA. You cannot pay personally.

Non-Recourse Loans FAQs

What is a non-recourse loan? 

A non-recourse loan is a loan where the IRA account holder is not personally liable. The loan is to the IRA not the individual IRA owner and it is secured by collateral, usually real estate. In the event of foreclosure or default, the lender can only pursue the IRA assets. Because it is a higher risk loan for the lender, the interest rates are typically higher. 

Where can I find non-recourse lenders? 

Most banks do not offer non-recourse loans. You must shop around for a non-recourse IRA lender, as every lender has different requirements, restrictions, and terms. Here is a list of non-recourse lenders.

Talk to a Self-Directed IRA Expert in Real Estate Transactions

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