A non-recourse loan is a loan where the borrower is not personally liable for repaying any outstanding balance on the loan, but the loan has to be secured by offering collateral, which would be the real estate property. If the borrower does not repay their loan, then they lose their collateral but are not responsible for repaying the outstanding balance on the loan. If the loan remains unpaid, the lender has no option but to foreclose on the property. A non-recourse loan can be summed up like this:
One of the biggest benefits of a non-recourse mortgage loan is that the borrower is not held personally responsible for the loan, since the non-recourse loan provider can only seize the collateral associated with the loan and nothing else. A non-recourse IRA loan is secured by the collateral. What this means is that in the event of a default, there is absolutely no recourse or ability to collect the mortgage loan from the IRA owner personally or the IRA itself.
Non recourse loans can be an attractive financing option for certain borrowers, but not all lenders offer them. I did some research to find the top non recourse loan lenders based on interest rates, fees, loan amounts, eligibility, and customer satisfaction. Here are my top 5 picks for the best non recourse loan lenders in 2023.
1. LoanDepot – Best Overall
LoanDepot topped my list as the best overall non recourse loan lender. They have competitive interest rates starting at 7.99% and origination fees as low as 1%. LoanDepot offers non recourse loans from $25,000 up to $2 million, with loan terms from 5 to 30 years.
While credit score requirements are higher than some other lenders at 640, LoanDepot has more flexible debt-to-income requirements. I also like that they allow non-owner occupied properties.
Customers praise LoanDepot’s fast application process and funding times, LoanDepot offers great customer service and an easy application process done completely online,
2. NASB – Best for Real Estate IRAs
NASB (North American Savings Bank) stands out as one of the few lenders offering non recourse loans for real estate IRAs Their IRA non recourse loan program allows you to use retirement funds to invest in real estate
NASB offers competitive fixed and adjustable rate mortgages for residential and commercial real estate purchased through a self-directed IRA. While limited to IRAs, NASB has flexible qualifying guidelines and allows loan amounts up to $5 million.
I recommend NASB for anyone wanting to use their IRA to invest in real estate. Their IRA lending experts can walk you through the process.
3. LendingHome – Best for Investors
LendingHome caters specifically to real estate investors with their non recourse loan options. They offer both short-term bridge loans and longer-term rental property loans.
Bridge loans from $100k-$10 million can help investors flip properties quickly. For buy-and-hold rentals, LendingHome offers 20-year fixed rate non recourse loans up to $5 million. Minimum 660 credit scores and 50% LTV requirements aim to reduce risk.
LendingHome has some of the fastest funding I saw, with loan decisions in as little as 5 days. The online process is simple for seasoned investors.
4. National Real Estate Funding – Best for Low Fees
Of all the non recourse lenders I reviewed, National Real Estate Funding has some of the lowest fees. Origination fees start at just 0.95% and they charge no prepayment penalties.
Despite the low fees, interest rates are competitive from 6.4% to 9.4% for loan amounts $100k to $20 million. National Real Estate Funding will finance up to 75% LTV for commercial properties or 80% for residential real estate.
They offer both adjustable and fixed rate options with flexible terms. The minimum 680 credit score requirement is higher but still accessible for many borrowers.
5. Silver Hill Funding – Best for Startups
Silver Hill Funding makes my list by offering non recourse loans to startup businesses unable to qualify with traditional lenders. They provide commercial real estate loans from $1 million to $20 million with credit score requirements as low as 600.
Silver Hill accepts lower collateral values, with maximum LTVs up to 85%. With no minimum time in business requirements, this lender works with newer companies other lenders may shy away from.
While interest rates are on the higher end, Silver Hill Funding fills an important niche for startups needing commercial real estate funding.
What to Look for in a Non Recourse Lender
If you’re considering a non recourse loan, keep the following criteria in mind as you shop lenders:
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Interest rates and fees: Non recourse loans typically have higher rates and fees to offset the increased risk to lenders. Compare total costs.
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Loan amounts: Each lender sets their own minimum and maximum loan amount. Make sure it falls within your needs.
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Credit score requirements: Non recourse lenders generally require good credit, around 640 and higher. Check if you meet the minimum.
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Debt-to-income requirements: Your total monthly debt payments, including the new loan, should be within lender DTI limits.
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Loan-to-value (LTV) requirements: Your loan amount can’t exceed a certain percentage of the property’s appraised value.
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Property types: Not all lenders finance every property type. Many focus on residential or commercial real estate.
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Customer reviews: Online customer feedback can give you insight into the lending experience with each company.
The Bottom Line
While not as widely available as recourse loans, non recourse loans fill an important niche for certain borrowers and investors. I recommend starting your search with the top 5 lenders on my list as the best options for non recourse loans. Compare costs, eligibility guidelines, and financing terms to find the best fit for your specific situation.
Your IRA is Liable For Your Loan, Not You
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.
Purchase Real Estate With Your IRA
Did you know that the ability to buy real estate with your self-directed IRA is allowed and has been for quite some time? Since 2008, First Western Federal Savings Bank has been a nationwide non-recourse loan lender of choice, with a specialty in helping people purchase real estate with their self-directed IRAs. Yet, for all of us at First Western Federal Savings Bank, non-recourse loans are more than just our specialty — they are our passion.
There are several types of property that you can acquire through a non-recourse loan, and our non-recourse loan lenders can help you get there. Your non-recourse lender will give you the loan you need to acquire the property, and you will put up collateral as a way of promising to pay your loan on time. If you don’t pay your loan on time, the lender can take your collateral. The types of real estate that you are able to invest in with your non-recourse loan includes:
- Residential Property – This is one of the most popular types of property that can be bought with your non-recourse loan. In addition to houses, condominiums and townhouses can be purchased with a non-recourse loan.
- Commercial Property – With your non-recourse loan, you can invest in property like a storefront, officespace, or some other form of headquarters.
- Multi-Unit Property – Multi-unit property, or a multi-family home and apartment building, can also be purchased with your self-directed IRA. Investing in apartment buildings can be a highly lucrative business deal.
- Agricultural Property – Invest in agricultural property with your non-recourse loan. A lease contract can also be implemented when crops or livestock are utilized on the agricultural property, and this setup can actually be used to help generate income.
Demystifying Non Recourse Loans with Solera Bank
FAQ
How hard is it to get a non-recourse loan?
Is North Carolina a non-recourse state?
What are the disadvantages of a non-recourse loan?
What is a recourse loan?
Recourse loans are a type of secured debt that lets lenders recoup defaulted loan balances by seizing both the loan collateral and—when necessary—the borrower’s other assets. Common types of recourse debt are auto loans, credit cards and, in most states, home mortgages. In the case of default, the lender can seize and sell the collateral.
What is a non-recourse loan?
Non-recourse debt also is secured by a borrower’s collateral. However, in the case of default, the lender only can seize the collateral specified in the loan documents and cannot go after the borrower’s other assets. Few banks offer non-recourse loans, but home mortgages are treated as non-recourse loans in 12 non-recourse states.
Is a home mortgage a non-recourse loan?
Few banks offer non-recourse loans, but home mortgages are treated as non-recourse loans in 12 non-recourse states. Non-recourse debt also has higher interest rates and more restrictive borrower qualifications than recourse because non-recourse debt is riskier for lenders. What Is a Recourse Loan?
What are the different types of non-recourse lending?
There are two types of non-recourse lending: secured and unsecured. Secured is used to purchase something, which is then collateral, such as a car, house, or large piece of machinery. Unsecured non-recourse loans have no collateral, such as personal and student loans. In secured non-recourse lending, the collateral is considered.