What is a Non-Recourse Real Estate Loan?

Upfront cash is always king in the housing industry. Some investors are wealthy enough to buy a home for sale without requiring financing. For the average person, getting qualified through a lender in order to buy a home is a common occurrence. There are ways around traditional financing that now exist through some lenders. The video and content on this page teaches what is a non-recourse real estate loan and how it can open up new options for new home buyers.

Defining the Non-Recourse Loan

A large portion of conventional loans are known as recourse loans. This segment of a property agreement allows a bank or lender to take back a property if payment is not made according to a set schedule. A lender can also seek damages as well as the amount of money lost on a home that is foreclosed.

The non-recourse loan provides a safe way out for a person who unfortunately defaults on a loan. While the property must be given back to a lender, there is no future pursuit to obtain lost funds on the real estate. The favorable terms for borrowers who seek these loans has increased attention for using this lending strategy for property investing.

Self-Directed IRA Loans for Investment Homes

A growing trend in the housing market is for borrowers who have retirement accounts dollars to fund the purchase of a piece of property. Both individual and LLC IRA holders can seek alternative loan types when considering how to finance an investment purchase. There are banks that make it easy to apply for a loan using a self-directed retirement account.

There are differences in the qualifying for an alternative loan as an investor. It can be common for some lenders to require a minimum of 30 to 50 percent as a downpayment. This means that a set percentage needs to come from the retirement account as proof that enough funds are available to cover the purchase of a home. Some institutions can convert Roth, 401(k) and other types of accounts into a self-managed fund that could be use to buy available housing.

Non-Recourse Debt Forgiveness Waiver

A person who buys investment property in Florida or in other states could be protected from paying tax on foreclosures under current IRS rules. The cancellation of dept that is normally tied to a regular mortgage can be forgiven. There can be other tax consequences under state law that could apply to an investor who defaults on a non-recourse investment property loan. Checking with an accountant or other professional is a wise decision before entering into a participation agreement with a lender.

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