Non-Recourse Loans for IRA Real Estate: How They Work
A non-recourse loan means the lender can only seize the property if you default—they cannot go after your other IRA assets or personal assets. IRAs are required to use non-recourse financing because a personal guarantee would be a prohibited transaction. Typical terms require 40-50% down payment, carry interest rates 1-2% above conventional mortgages, and have 15-20 year terms. The leveraged income triggers UBIT at rates up to 37%.
- Non-recourse: lender can only seize the property, not other assets
- Required for IRAs: personal guarantees are prohibited transactions
- Typical terms: 50-60% LTV, 15-20 years, rates 1-2% above conventional
- Leveraged income triggers UBIT at trust tax rates (up to 37%)
- Solo 401k avoids UBIT on leveraged real estate (Section 514(c)(9) exemption)
What "Non-Recourse" Actually Means
Recourse Loan (Regular Mortgage)
With a regular mortgage, you personally guarantee repayment. If you default, the lender can:
- Seize the property
- Sue you personally for the remaining balance
- Garnish wages and go after other assets
- Report the deficiency to credit bureaus
NOT ALLOWED for IRA real estate
Non-Recourse Loan (IRA Mortgage)
The lender's only collateral is the property. If the IRA defaults:
- Lender can seize only the property
- Cannot pursue other IRA assets
- Cannot pursue your personal assets
- No impact on your personal credit
REQUIRED for IRA real estate
Why IRAs Require Non-Recourse Financing
Under IRC Section 4975, a "prohibited transaction" includes any direct or indirect extension of credit between you (a disqualified person) and your IRA. When you personally guarantee a mortgage for your IRA, you are extending your personal credit to benefit the IRA. That is a prohibited transaction.
Non-recourse loans solve this by removing the personal guarantee entirely. The lender evaluates the property's cash flow and value to make the lending decision, not your personal creditworthiness. This keeps the transaction arm's-length and IRS-compliant.
Typical Non-Recourse Loan Terms
| Feature | Non-Recourse (IRA) | Conventional Mortgage |
|---|---|---|
| Down Payment | 40-50% | 20-25% |
| Interest Rate | 1-2% above conventional | Market rate |
| Loan Term | 15-20 years (some 25-30) | 15-30 years |
| Personal Guarantee | None (prohibited) | Required |
| Credit Check | Property-based underwriting | Personal credit score |
| Minimum Loan | $50,000-$100,000 | Varies |
| UBIT Implications | Triggers UBIT on leveraged income | N/A (personal property) |
Lenders Who Offer Non-Recourse IRA Loans
Not many banks offer non-recourse loans for IRAs because the lending risk is higher (they cannot pursue personal assets). Here are some of the most established lenders in this space:
North American Savings Bank
First Western Federal Savings Bank
Solera National Bank
Pacific Enterprises Trust
Disclaimer: Lender terms change frequently. Always verify current rates, terms, and availability directly with the lender. This list is informational and not an endorsement. Your IRA custodian may also have preferred lending partners.
Skip the Mortgage Hassle. Try Gold Instead.
Gold IRAs require no loans, no property management, and no UBIT. Augusta Precious Metals makes it simple to protect your retirement with physical gold.