Loans after doing a 1031 exchange

[Matt Smith]

I called few banks for a loan where I could use the proceeds of the 1031 exchange as a down payment. However, several banks including QuickenLoans and Wells Fargo appeared to be wondering whether I can get a loan because it is a 1031 exchange. Are there any restriction? I thought I could get any traditional loan and that the 1031 exchange does not impact this at all?

[Dave Foster]

@Matt Smith, the only restriction I can think of would be if you were seeking a primary residence or 2nd home loan and were attempting to use 1031 proceeds as your down payment.  That would not be appropriate because 1031 funds must be used to purchase real estate used for productive use in business trade or investment - not your primary residence.  Even in that a 2nd home loan would not be specifically precluded as many times it is possible to meet both the statutory requirements for 1031 and the underwriting requirements for what banks call a 2nd home loan.

The only statutory requirements are that you use all the proceeds from your sale in the next purchase.  You may bring in additional funds needed from any source.

Banks and lenders are not immune to misunderstanding the law.  A good QI can generally help them wade through what they think they know and what their underwriting guidelines are to arrive at the right conclusion.