Does non-recourse in an IRA require a W-2

6 Replies

Hopefully this is the right forum.

Does anyone know if a non-recourse loan within an IRA requires a W-2 (proof of employment)? Since the loan is entirely secured by the collateral, will the financial institution still require it.

Thanks @Brian Eastman . Reading my question again ... I think it was incomplete.  Here is how I think the process works ... 

1. Investor gets a Self Directed-Custodian.

2. Investor transfers the money from retirement (IRA, 401k, ...) to SDIRA managed by SD Custodian

3. Investor/Custodian create an entity within the SDIRA. 

4. Investor finds a property of interest. 

5. Entity created above makes the offer to purchase the property. Loan qualification will depend on Entity (i.e.: there could be a 60-70% LTV qualification requirement that needs to be met). Entity needs to come up with 30-40% from its own funds.

6. Financing the remaining 60-70% needs to be done through a qualified financial institution within the IRA. Investor funds don't matter?

My question was whether the financing of the remaining 60-70% within the SDIRA requires any W-2 from the investor.

@Henri Meli

The answer I provided above still holds. You as the investor cannot pledge a personal guarantee on any debt instrument under the umbrella of the IRA. As such, your income and debt-to-income, etc. do not really factor into the lender's underwriting.

This is true whether you simply establish a self-directed IRA with a custodian for investing in real estate or work with a firm to establish a checkbook IRA LLC as you describe. In the IRA LLC, the IRA is the sole member and responsible party of the LLC, so the LLC is just an extension of the IRA in most senses. The IRA is still ultimately the borrower on the note.

Henri,

as Brian explained with non-recourse financing you are not the one qualifying for the loan. The property must qualify. While the lender may look at your personal credit report and your financials, those would not be determining factors, as long as the property qualifies - you can get the loan. Personal income is of no relevance here. Here is a list of lender that I have put together for my clients who offer such financing, hope it will be helpful: 

https://www.biggerpockets.com/blogs/2810/50272-lis...

@Henri Meli it looks like you may be needing to check with the banks you are planning to get the non-recourse loans through as well. Everywhere I have seen requires 40%-50% down payment from the IRA to do non-recourse, and the one that didn't required so much in reserves (within the IRA) that it would have been better to get a 50% down from another vendor.

At no point does your income have anything to do with the loan. It is all the property and the IRA.

Best of luck!