Recourse vs Non Recourse: A common question I get

[Clayton Silva]

"Is this loan non-recourse". That question is often better answered by asking what you mean by that. Common misconception is that DSCR loans are non-recourse because they can close in an LLC. However, even DSCR loans require personal guarantees and MAY or MAY NOT report to credit. Reporting to credit is not recourse or non-recourse. Side note on why some DSCR loans report to credit: loans get packaged up and sold to large servicing companies after closing. As anyone who has held a mortgage for more than 10 years knows, they will likely get transferred a few times. Each servicer treats the loan a little differently, and some may ultimately report the loan on your credit. You may be able to call the servicer and provide the original loan docs to show that it was not supposed to report to your credit. HOWEVER, on that note, just because it does not report on your credit DOES NOT mean it is non-recourse and therefore it DOES count towards your DTI calculation in most cases going forward.

Off my side tangent, a true non-recourse loan is any loan that does not have any kind of personal guarantee. These loans are often found primarily in larger commercial real estate and is a very specific loan product. For people wanting true non-recourse (usually to buy real estate in self-directed IRAs), you have to go to very specific specialty lenders. Expect to put 30-40% down on the property and then consult a self-directed IRA specialist to make sure you understand all the nuances of how to manage the property and pay for repairs. True non-recourse is EXTREMELY rare in residential real estate, so I hope this clears up some confusion and helps someone!