Using an IRA to fund a down payment

[Bradley Babineaux]

Is it possible to use an IRA to use as a down payment on a rental. Thanks

[Dmitriy Fomichenko]

@Bradley Babineaux

If you wish to purchase property personally - you could take distribution from your IRA (subject to applicable taxes and penalties for premature distribution), and use it for a down payment. You can use conventional mortgage to finance the purchase.

You can also set up a self-directed IRA, transfer your funds from your current IRA tax-free and buy a rental inside of your self-directed IRA. Keep in mind that you don't own the property, your IRA owns it. All income and gains from the property belongs to the IRA, not you personally. All related expenses must be paid from the IRA. As disqualified person you are not allowed to provide any services to your retirement plan or do any work on the property. You can finance the purchase but because you are considered "disqualified person" to your IRA the IRS rules prohibit you providing personal guarantee, the loan must be non-recourse. There are only certain lenders who specialize in this type of loans, here is the list:

https://www.biggerpockets.com/member-blogs/2810/50272-list-of-non-recourse-lenders-for-self-directged-ira-and-401k

The down-payment requirement typically at least 30%, if you go with private lenders you will pay higher rate, but if you go with one of the lenders from the list above you will find that they have very reasonable loan terms. 

Hope this helps!