Using Your IRA

You Can Invest in Residential Real Estate!

Using your IRA to invest in residential real estate is possible.  Instead of allowing your retirement funds to dwindle away in the stock market, you can use your IRA to purchase cash flowing properties to hold for long term capital appreciation and growth.

Here’s what you need to know:

·         You must have a Self-Directed IRA that is in the name of an LLC.

·         You need to consult a company that acts as a custodian for Self-Directed IRA for details on how to set up your IRA.

·         The IRA is used to qualify the purchase loan. 

·         The lender looks at the IRA to make sure that the IRA has enough money to fund the down payment

·         The lender also looks to make sure there are enough funds in the IRA after the down payment to equal 12 months of PITI as a reserve.

·         The individual that holds the IRA will have to make an application.

·         The application is NOT for qualification purposes. 

·         The application process is for safety purposes. 

·         We want to take every step possible to avoid identity theft and the loan application process helps us do that.

·         Not all properties qualify and the lender will do specific market research to determine the quality of the investment.

·         There are restrictions on the loan amount and requirements about age, rehabbed status, market gentrification and other factors that determine whether a property is viable for the program.

·         The maximum LTV is 70%.

·         The IRA must have enough money in it to cover the 30% down payment and the 12 month PITI reserve requirement.

·         Two loan types are available.

·         8.25% 30-Year Fixed

·         7.75% 5/1 ARM w/30 year amortization.

·         There is a prepayment penalty

·         3 year prepay at 2% (non-declining)

·         Or – 3 year prepay at 1% (non-declining) when 1 discount point is paid at closing.

·         Closing Cost and Origination.

·         2 points of Origination.

·         Other closing costs range from 2.5 to 3% of the loan amount.

·         The average deal costs about 3.5-4% in closing cost and origination.

·         Minimum DSCR is .95, however, the higher the DSCR the better.

·         DSCR = Debt Service Coverage Ratio

·         The ratio is calculated by dividing the rent by the PITI payment.

·         PITI = Principle, Interest, Taxes & Insurance

·         For optimal approval, the DSCR should be 1.10 or higher.

·         Minimum and Maximum loan amounts do apply for various areas.

·         Maximums are applied based on zip code and for most areas the max loan amount is around $175,000.

·         Minimums are also applied for most areas and the minimum loan amount is usually around $50,000.

·         Seller seasoning is required.

·         For most properties, the seller is required to have owned the property for a minimum of 90 days.

·         If the property is not rented, then the lender will use rent comps provided by the appraiser.

·         The lender will order the appraisal.

·         The lender will order title.

·         The appraisal fee is due in advance.

·         The transaction is graded based on the property first and the assets in the IRA second.

·         Title is held in the name of the LLC

·         The loan is a Non-Recourse Residential Investment Property mortgage.

·         Condo’s are allowable at a 60% LTV with a 25 year amortization.

·         2-4 Unit Residential Investment is allowed at a 65% LTV.

·         For answers to more specific questions contact your Realtor or contact:

                        Michael Gross

                        President

                        Dividend America

                        404-819-4511 (C)

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