Second , you need to find a property that is either already rented or will be easily rentable once you own it . The property being purchased by your retirement account must be an investment property . It cannot be a primary or secondary home .
The third thing you need to keep in mind is the rent the property will generate should be 120 % of the property ’ s total expenses , which includes the mortgage payment , taxes , insurance ,, any HOA dues , , a vacancy factor of 7 %, and a management fee if the investor is going to have a property manager . Some investors opt to manage the property themselves , which is usually permitted . If you find your property is not generating enough rent to exceed these collective expenses by a minimum of at least 20 %, then the loan will almost always be rejected . The one thing that can offset an imbalance in the incomeexpense relationship is if the borrower has plenty of reserves in their respective retirement account . A lender that otherwise likes the property and the investor ’ s overall financial strength will make an exception when the debt ratio falls below that 20 % margin . So , make sure your retirement account has sufficient assets to cover any deficit for a long period of time .
At the time the lender analyzes the respective property for a loan , the lender needs to see that the borrower will have 15 % of the loan amount in their retirement account as reserves . Some lenders require only six months of mortgage payments , taxes , and insurance . It depends on the lender and the property ’ s cost . In either case , the investor must maintain some level of reserves . The lender will audit the investor ’ s account at year end to make sure they comply with this requirement .
What Property Types Do NonRecourse Lenders Consider ?
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Most nonrecourse lenders are very particular about the types of properties to which they ’ re willing to grant a mortgage . Generallyspeaking , thee lenders will consider singlefamily homes , condominiums , duplexes , triplexes , and fourplexes . Most of the betterknown , nonrecourse lenders do not lend on commercial properties , although there are a couple that will consider multifamily properties up to 15 apartment units , and some that will consider business properties such as offices or industrial warehouse types . There are only a couple of lenders that can be depended upon for these types of properties in general . Once the investor seeks a commercial property , there are other dynamics to the loan process and the mortgage arena that can be discussed with the author .
When it comes to 14 unit properties , most lenders do not want to lend on properties that cost less than $ 200,000 because they don ’ t want to lend amounts less than $ 120,000 . Knowing that the downpayment required for these loans is 40 % oftentimes precludes many properties from being attractive to these lenders to issue a mortgage . The majority of lenders also do not like to work with properties that were built more than 70 years ago . There are properties known as row houses which are common in certain cities such as Philadelphia . Lenders generally steer clear from lending on these properties . Vacation rentals can also be troublesome because they don ’ t necessarily produce a steady stream of income to ensure the monthly debt will be covered . The borrower needs to present a compelling story to the lender as to why this particular property will maintain or exceed the debt ratio requirements discussed above . Lenders also require the property to have a minimum square footage of 700 square feet or greater to issue a nonrecourse loan .
To Follow Up
To learn more about using nonrecourse loans for retirement funds ’ purchases of real estate , contact the author by phone at ( 415 ) 3091803 , or by email at :
mark @ lendingresourcesgroup .
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