The 4th annual Self-Directed IRA Summit was held on June 8 in Chicago and First Western Federal Savings Bank was honored to be a sponsor of the event. Our very own Roger St. Pierre, Senior Vice President at the bank, was able to speak about non-recourse lending and self-directed accounts. The summit focused on helping new investors seeking to master the foundational concepts of the loan, as well as experienced investors who want to go beyond the basics and advisors and professionals who are assisting clients with non-recourse loans.

As a non-recourse loan lender, First Western Federal Savings Bank is passionate about educating new investors and helping experienced investors find affordable solutions for their business ventures. The world of investments can be complicated and overwhelming, but we strive to make the process as simple and as straightforward as possible. At the summit, Roger was able to discuss what a non-recourse loan is, factors of non-recourse lending, and issues of this type of loan.

What is a Non-Recourse Loan?

This type of loan is acquired by providing the lender collateral for the loan. Non-recourse loans are almost entirely used for real estate investments, so types of collateral would include single or multi-family dwellings, commercial real estate, farms with income, or a vacation rental. The benefit of this type of loan is that, if the borrower fails to keep up with payments on the loan, the lender has to eat the loss if there is a balance remaining after the collateral is sold.

Key Factors of Non-Recourse Lending

In order to qualify for a non-recourse loan, the borrower must have stellar credit history and there are a few qualifications in regards to the purpose of the loan as well.

Property Qualifications

A non-recourse loan is used when an individual or business intends to purchase real estate as an investment property. The property must:

  • Be built after 1940.
  • Be located in the United States.
  • Not be a primary residence.
  • Be at least $70,000.
  • Have its own roof.

Financial Qualifications

  • In order to qualify for a non-recourse loan, borrowers must:
  • Have at least a 1.25 DSCR (debt service coverage ratio).
  • Have enough in their self-directed IRA or 401(k).

Issues That Derail Loans

Because the lender is taking on some risk with non-recourse loans, the application process is more stringent, there is less flexibility when it comes to the structure of the loan, and the term is typically longer. Other issues include wanting to invest in property types that don’t qualify, if the borrower’s credit score isn’t high enough, and if the borrower fails to keep up with their monthly payments. These types of loans are not ideal for all investment situations, but First Western Federal Savings Bank is happy to discuss specifics in order to help you understand your needs and if this option is right for you.

First Western Federal Savings Bank in Rapid City, SD strives to provide personalized service for each customer. As a non-recourse loan lender, we understand the smallest details of the process, the requirements, and what happens when the loan is in default and we will do our best to ensure that you have the information you need to make a decision.

We were honored to be a part of the Self-Directed IRA Summit and we can’t wait to help you secure your own non-recourse loan.