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

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.
  • Need less than $10,000 worth of work to be “rent-ready”

Financial Qualifications

  • Property must generate at least a 1.25 DSCR (debt service coverage ratio).
  • Borrower must have enough funds in their self-directed IRA or 401(k) for the downpayment, closing costs, and 15% of loan amount in liquid reserves.

Issues That Derail Loans

  • Property in poor condition.
  • Debt service coverage weak.
  • Overestimating rental income.
  • The property is in a high crime area.
  • Inadequate reserves.
  • Surrounding property sales prices much lower than the subject.

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.