When choosing a recourse or a non-recourse loan, both have their uses and their pros and cons. Recourse loans are typically easier to qualify for because they are less strict on their requirements to obtain. Non-recourse loans are not as easy to procure but typically provide added protections to the borrower.
Differences between recourse and non-recourse become very important if you start to default on your loans. The IRS defines the difference between non-recourse and recourse loans as whether you, as the borrower, are personally liable if they default. In other words, when something goes wrong with your loan, and the lender needs to recoup any lost cost, other assets that belong to you could be used to make up for the difference.
Silver Dollar Financial has the experience and knowledge to help you in pre-settlement funding through a non-recourse loan. It can be challenging to navigate through all the steps alone, but Silver Dollar Financial is here to help give you the best advice possible. Give us a call today at (844) 871-0628.
The Difference Between Recourse and Non-Recourse Loans
When your loan is in default, a recourse loan will not only repossess whatever it is you are trying to pay off but, if needed, will also seek to obtain your wages or other sources of income. Lenders usually do this when there is a loss, and the lender cannot get back the full amount they loaned out.
For example, if you cannot make payments on a home loan, the bank will foreclose the home. If the home value does not match up to the remaining amount owed, the difference gets sought through other financial pathways such as your income, etc.
Defaulting on a loan is never a good thing but losing more on top of what is already lost is even worse. Recourse loans offer little protection and put much of the financial burden onto the borrower. This is why most lenders prefer to give out recourse loans because it allows them to recover should they lose money on the loan.
Non-recourse loans are the opposite and instead offer protection to the borrower. After an event like a foreclosure, the bank cannot go after any other sources of income or other assets that belong to you, even if the home’s value does not match the remaining balance on loan. But, how do you qualify for a non-recourse loan? There are a few qualifications, but they are not easy to meet.
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Qualifications for a Non-Recourse Loan
For home loans, one straightforward way to tell if you are qualified for a non-recourse loan is to see if you live in one of these states:
- California
- Washington
- Alaska
- Arizona
- Idaho
- Connecticut
- North Carolina
- North Dakota
- Minnesota
- Texas
- Oregon
- Utah
These 12 states, according to Forbes, are the states that automatically mean home mortgages are non-recourse. Due to this, if you have borrowed a mortgage from any one of these states that means you were already qualified.
For any other loan type or situation, qualifying for a non-recourse loan is more difficult. Typically, non-recourse loans require that you have a low debt to income ratio and a higher than normal credit score. Credit scores that qualify are stellar, and you must have the financial capabilities to prove it. On top of that, most non-recourse loans also have higher interest rates due to the risk the lender is taking since non-recourse loans tend to be one-sided against them.
Having a weak credit history with a high debt to income ratio will make it harder to qualify for a non-recourse loan. Recourse loans will also provide lower or competitive interest rates to you since there is less risk involved with the lender. These are factors to consider when thinking about whether you want to proceed with a recourse or non-recourse loan.
Benefits of a Non-Recourse Loan
Once you qualify for a non-recourse loan, the lender can not take any of your other assets. If you have the credit score and the financial stability, a non-recourse loan is a great option to consider as a recourse loan offers you little to no protection in the event of default.
Non-recourse loans protect you. They exist as a form of contingency just in case things go bad. Now, ideally, you should not even have to get to a point where the benefits of a non-recourse loan need to help you, but even with careful planning, you can never tell the future. Things can happen out of the blue, and there may be a moment where the benefits of a non-recourse loan can save you money should things go awry.
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Non-Recourse Loan Assistance
Non-recourse loans can be hard to qualify for as the requirements are strict and not easy to meet. Despite this, non-recourse loans give you the best protection and are usually hard to obtain for that reason. Non-recourse loans are almost always borrower sided and give you peace of mind knowing that you are protected if things do not go as planned.
Not being personally liable for a loan going into default is an incredible thing to have on your loan terms. When possible, you should always try to seek out a non-recourse loan whenever borrowing money.
Silver Dollar Financial makes the steps to qualify for our non-recourse loan very simple. We are here to assist you and make sure you get the best help possible. We make qualifying easy and quick. If you need pre-settlement funding that is non-recourse, give us a call at (844) 871-0628, and we will help you get started.
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