IRA Non-Recourse Loans | SouthStar Bank
Consider the following scenario: You want to buy real estate using your self-directed IRA. The non-recourse loan is applied for by your IRA or retirement plan and the debt is secured by real estate.
Some of your IRA money and the non-recourse loan are used to purchase the property, leaving the rest of your IRA funds invested and earning interest.
For example, let’s say you find an investment property for $200,000 and have $200,000 in your IRA. You don’t use all the money in your IRA, but maybe $100,000, then you can get a non-recourse loan in the name of the self-directed IRA to make up the difference. Your IRA now has $100,000 in it, which is earning interest and growing.
These loans are often utilized to provide you with additional funds in the event that your property requires repairs or upgrades, or to invest in commercial real estate. Taking out a non-recourse loan allows you to diversify your investing portfolio rather than putting all of your eggs in one basket.
It’s a huge win for you and your retirement account. By leveraging the bank’s money, non-recourse lending enhances your IRA. Furthermore, the IRA’s money is safeguarded and can be used for other investments.
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 in most situations, the IRA holder’s credit does not play a role in the IRA’s eligibility.
Borrow What You Need
There is no minimum or maximum loan amount at SouthStar Bank. The loan is in your IRA’s name and the amount you can borrow is determined by the value of your real estate investment.
SouthStar Bank offers non-recourse IRA loans for single-family houses and condominiums (2-4 units). Keep in mind that the property’s net operational income/cash flow must be sufficient to cover loan payments.
A percentage of the purchase price must be vested in a self-directed IRA for eligible borrowers. Your non-recourse IRA loan down payment will be determined by the property you buy, its condition and estimated cash flow. A 40 percent down payment is usually required by SouthStar Bank.
Non-Recourse Loan Benefits
A non-recourse loan, as mentioned above, is a form of loan that you can take out using your IRA to buy real estate investments. Your IRA owns these loans, which are subject to UDFI (unrelated debt-financed income) and must be returned through your IRA. Non-recourse loans have other advantages than helping you finance your real estate venture.
Your IRA, not you, is responsible for your loan
When you open a non-recourse loan, your IRA owns it, not you, which means that you will not be held personally liable should anything happen over the life of the loan.
There Is No Recourse Against You if You Default
If you default on your non-recourse IRA loan, there will be no financial consequences, unlike if you default on a recourse loan. You and your IRA are both protected, so the lender cannot take anything from you except your collateral.
Because everyone’s circumstance is different, talk to a lending professional at SouthStar Bank to see if a non-recourse IRA loan is correct for you.
SouthStar Bank is currently accepting applications for properties within the state of Texas only.
Contact our IRA Lending Specialist today!