Using collateral for downpayment instead of cash

10 Replies

I am looking to buy a property that will need 20%-25% down. I would like to leverage my IRA as collateral for a down payment instead of using my own cash, home equity loan or refinancing a rental. Has anyone ever did this? Is it hard? Is there any banks in particular that offers this as a down payment?

@Gene Ferriter

Dimitry is correct, but I think he may have mis-interpreted your question. You may not purchase a property and pledge your IRA as collateral in any fashion,

The IRA could purchase the property and obtain a non-recourse mortgage. In this case, the IRA is on title and makes the down payment. The IRA borrows from the lender, secured by the property. There can be no personal guarantee from you. Non recourse lenders typically want 35-40% down and 10% cash on hand reserves in the IRA.

The IRA is then responsible for all costs associated with the property and all income is returned to the IRA tax sheltered. There is a tax known as UDFI that applies to the portion of the income that is derived to the IRA from the borrowed capital. It typically does not add up to much, and the end result is that your IRA owns a real asset and is receiving a leveraged rate of return.

@Dmitriy Fomichenko thanks for the response. I thought I read you use the IRA. Back to the drawing board.

@Brian Eastman I just did my first non recourse loan in my self directed IRA leveraging another rental property. I am excited to see how this works out.

@Dmitriy Fomichenko In my own name with a conventional mortgage

@Gene Ferriter

thanks for clarifying, my original answer would remain the same.

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