With so many steps involved in the process of buying a property, it can be easy to lose track of everything. There are many qualifications that need to be met when applying for a non-recourse loan. You need to have a property in mind, but it also needs to meet the requirements. You need to have enough money, but there are other financial regulations that need considering.

First Western Federal Savings Bank is among the nation’s top non-recourse lenders, and we are committed to providing you with clarity when it comes to using your self-directed IRA for investment purposes. Take a look at some of the qualifications that our non-recourse lenders are looking for, and get started with First Western Federal Savings Bank today.

Financial Qualifications

When you want to purchase a property for the purpose of turning it into a rental, there are several key factors which help determine whether or not you qualify.

Have at least a 1.25 DSCR.

The Debt Service Coverage Ratio (DSCR) is used by FWFSB to determine your ability to pay off the expenses that come with taking out a non-recourse loan, as well as operational expenses of your property (such as taxes, maintenance, and general upkeep). When calculating this, your ratio needs to be at least 1.25, which is good to keep mind for when you’re looking to buy a property. We will not approve loan applications for properties and situations where the DSCR is lower than 1.25.

Have enough in your self-directed IRA or 401k.

We’ve mentioned this before, but you need to have enough in your self-directed IRA to put down 40 to 50 percent on the property you’re looking to buy, plus reserves. Our non-recourse lenders will take this into account when reviewing your application.

Property Qualifications

In order to be approved for purchasing the property you’re looking to turn into a rental, our non-recourse lenders will also review the type of property that you’re interested in. Here are some of the requirements to keep in mind.

The property needs to be built after 1940.

Any homes built before 1940 will not qualify for turning into a rental (by way of utilizing a non-recourse loan, used in tandem with your self-directed IRA).

It must be in the United States.

Properties in Alaska and Hawaii are more than fine, but your property needs to be in one of the 50 states. International properties will not qualify.

It cannot be your primary residence.

Working with non-recourse lenders for this type of loan is in terms of an investment property, and one of the best ways to further your investment potential is by turning this property into a rental. Whether for vacation or long-term rental purposes, the property you acquire cannot be your primary or secondary place of residence.

It needs to be at least $70,000.

Houses or properties lower than $70k will not be considered.

It needs to have its own roof.

An apartment or terraced (row) home will not qualify, because these types of properties do not own or are not responsible for the roof. The property you’re looking at must have its own roof that is not shared with any other properties.

Hopefully this helps to clear up some of the questions that come our way when people are looking to work with our non-recourse lenders! If you have more questions, you are welcome to refer to our IRA non-recourse loan page, check out our YouTube channel, and, as always, get in touch with First Western Federal Savings Bank for more information. We look forward to hearing from you!