Jim and Kyle were tired of renting. They worked hard, saved money, and wanted to invest their savings in real estate. But they needed a more credit history and a down payment.
Jim and Kyle were fine with getting approved for a mortgage – they got pre-approved by several banks within days of applying. The problem was that these lenders required a 20% down payment before lending money to purchase the property. And since neither Jim nor Kyle had any savings, neither one could qualify for the loan amount needed to buy their first rental property!
How a monetized non-recourse loan works
The most common type of non-recourse loan is a monetized non recourse loan. This means the lender will take a first lien on your property, but you don’t have to repay this debt if things go south. Instead, they will ask you to pay them monthly until the home sells. These payments depend on how much equity you have in your property and how much money you’re still owing on existing mortgages.
You can also choose not to be any other liens attached to your house. In this case, your monthly payments go straight into an escrow account. Only when it’s time for another mortgage payment will the lender distribute some funds from that account toward paying off those bills instead.
The lender will not ask for any credit history.
There are a lot of benefits to getting a non-recourse loan. Let’s start with the basics. You won’t need to provide any credit history or personal information like your annual income, age, and employment status. If you’ve never owned a home before and need a solid track record of managing debt responsibly, this may not be a good option for you anyway!
The lender will also not require any downpayment on the property. This can be helpful if you have little money saved but still want to buy rental properties immediately.
Finally, no credit check is required for non-recourse loans, so even if your credit score could be better (or if past mistakes have damaged it), they can still approve you for financing!
The existing mortgage is not paid off.
In short, the lender does not require any credit history if you have a non-recourse loan on an existing property. However, they will want proof of income and assets. Proof that you can afford the new mortgage payment is required too. This can be in the form of tax returns or pay stubs from your employer(s). The lender may also request statements from your other assets or savings accounts.
The bottom line is that these are good loans for first-time investors with little cash to invest but have the cash flow for their current expenses and want to purchase an investment property with little down payment upfront.
Jim was able to invest in real estate with bad credit.
Jim’s bad credit was not an issue when he used a monetized non-recourse loan to purchase his first rental property. A monetized non-recourse loan allows borrowers with no equity in the property they are purchasing (such as Jim) to get a loan secured by that property but has no recourse to the borrower personally if they default on their payments.
This means that if Jim defaults on his payments, only his investment is at risk, not his assets like the car he drives or even his home!
Banks will only lend to investors with good credit.
Banks are risk-averse. They need to be to survive. To ensure they’re not lending money to people who can’t pay them back, bank underwriting policies require that borrowers have good credit scores and sound financial histories. That means banks will only lend you money if you have good credit and want to purchase real estate as an investment property.
Monetized non-recourse loans, also called all-purpose or non-recourse financing, allow investors with poor or no credit score at all (or even investors who other lenders have turned down) the opportunity to purchase rental properties without having their assets attached as collateral against defaulted payments on the property they purchase with these types of loans.
A monetized non-recourse loan is the ideal solution.
As you’ve hopefully learned in this article, several financing options are available to real estate investors.
In my experience, the best option for most people is a monetized non-recourse loan. This loan allows you to leverage your cash and borrow against your property’s equity without using any of your assets as collateral (hence “non-recourse”). As a result, if things go wrong with your investment property, there’s no risk you’ll lose anything other than the money you put into the deal.
You can get a monetized non-recourse loan even if you have bad credit.
You may have heard that buying an investment property requires good credit or no debt. But, unfortunately, this is only sometimes the case!
If you want to make your first venture into real estate investing and buy an investment property with 100% financing (meaning no cash down), then this article is for you.
As you can see, Jim and Luis have both been able to invest in real estate by using a monetized non-recourse loan. This is an ideal solution for investors with bad credit who want to invest in real estate. However, it is important to note that this type of loan can only be taken out on properties that have existing mortgages.