Underwriting: 

Underwriting IRA mortgages can be considered a cross between residential and commercial mortgage underwriting. There is an element of residential underwriting, due to the types of properties (SFRs, Condos, Small offices, etc) the dollar amounts (traditionally under $1.5mm) and the fact that a person is the ultimate beneficiary of the investment. 

However, there are also elements of commercial underwriting in an IRA mortgage:  the property must be non-owner occupied, have status as an investment, and does not have a recourse note. All these factors, and the reliance on the analysis of cash flows and other variables normally associated with commercial underwriting (NOI, DSCR, Cap Rates, etc), make this process different from just standard underwriting.

Our loan origination standards and procedures are designed to produce high quality loans. These standards and procedures encompass underwriter qualifications and authority levels, appraisal review requirements, fraud prevention, funds disbursement controls, training of our employees and ongoing reviews of our employees’ work.

Summary Requirements for IRA Mortgage Financing

- Purchase and Refinance transactions for non-owner occupied investment properties only 
- IRA assets need to be deposited and managed by an approved custodian in a self-directed IRA.
- Borrowers provide most recent IRA statements for all of their IRA/retirement accounts (all pages).
- IRA assets will be verified for purchase and reserves. 
- Borrower must have sufficient IRA funds available through all of their IRA/retirement accounts, to fund the purchase, closing costs and reserve requirements.  
- The funds for haircut reserves must be in the name of the same account holder who is purchasing the real estate. 
- The IRA haircut reserve requirement may be up to 25% of the total amount of retirement funds of the account holder.
- The haircut reserve requirement may not be fulfilled by using IRA funds from a spouse or other family member.
- If funds from another IRA are being used, the structure of the purchase (title) must reflect both IRAs as owners with defined percentages of ownership. 
- No employment or income verification required.
- Full Tri Merge credit report required by all borrowers or members.
- For condos and hotel condos, a First IRA condo questionnaire (and NOI statement) must be completed by a condo association representative. First IRA will then determine if the condo/condo hotel meets our criteria for eligible property.  

First IRA Product Requirements

Eligible Property Types: Single Family Residential, condominiums (warrantable and non-warrantable), condo hotels, multifamily, (greater then 4 units) mixed use, retail, warehouse office, light industrial, and other special purpose properties.

Ineligible Property Types: Church/religious property, hospitals, nursing homes, and assisted care living facilities (ACLF), properties used for agricultural purposes, including working farms, adult entertainment facility, gas stations, etc.

Eligible Transaction Types: Purchase, rate/term refinance, and cash out refinance.

Lien: First lien position only. Liens subordinate to the first will be accepted on a case-by-case basis.

Maximum Loan Size: Up to $1,500,000.  Exceptions made with approval of the Chief Lending Officer.

Maximum Loan to Value: LTV/CLTV limits will be up to 80%.

Geographic Eligibility: All 50 states and the District of Columbia, and US islands and territories.

Loan Terms: 1-30 year terms; 24-month lockout on certain products, and 3-2-1% prepayment penalty for the first 36 months. 30-year terms will be acceptable on a case-by-case basis.

Yield Spread Premium: Par Pricing for now, No YSP.

Processing Fee: A processing and underwriting fee will be charged ($1,300) to cover fixed costs associated with processing.

Borrower Eligibility: IRAs and business entities that are owned by IRAs (corporations, partnerships, limited partnerships, limited liability companies and certain trusts) that meet First IRA's requirements (i.e. requisite authority and duration). 

Titling: The documents will be titled in any one of the following ways:
1. The Custodian name For the Benefit Of the IRA holder  (I.e. Pensco Trust FBO John Does IRA 100%)
2. An LLC that is owned by one or more IRAs  (I.e. John Doe LLC 50%)
3. A Partnership that is owned by one or more IRA.  (I.e. the John Doe Property Trust 50%)
4. A C Corp that is owned by one or more IRA  (I.e. John Doe Inc 50%)

Pricing and LTV: Pricing will be based on the cash flow of the property. (NOI, DSCR, cap rates, vacancies, rent roll, etc.) and we will take into consideration the amount of cash in the IRA account holder's IRA and retirement plans, and appraisal review analyst "Disposition Value".

- Full 1003 HUD Residential Loan Application
- Tri Merge Credit Report
- Appraisals-

 Single Family- FNMA 1004 / FHLMC 70 (with Rent Comps)
 2-4 Unit Multifamily- FNMA1025 / FHLMC 72 (with Rent Comps)
 Condominium Unit- FNMA 1073 / FHLMC 465 (with Rent Comps)
 Office and Commercial- Limited Summary

- Most recent statements for all of the IRA account holder's retirement accounts (401ks etc.)
- Articles of Organization, if the purchase is through a single purpose LLC (where the owner is the IRA)
- Current operating statement or pro forma for subject property
- Current Fire/Hazard Insurance Policy
- Completed Structural Disclosure 
- Completed Environmental Disclosure 
- Fully executed purchase contract
- All leases on subject property
- Current rent rolls
- Title Commitment
- Pictures strongly encouraged
- Financial statement from HOA if applicable
- Due on sale/Reconveyance disclosures
- And standard and customized disclosures

Credit Reports 

First IRA will not be allowed to underwrite the property or the loan based on the credit report of the IRA account holder.  However, for purposes of underwriting, (and to confirm the existence, addresses, etc.) a tri-merged credit report dated within 30 days of submission will be required for each individual IRA account holder/borrower or guarantor.  If your customer doesn't want to provide a credit report, we can offer other products, however the rates and terms will be different. A business credit report may be required to confirm the existence of the business entity.

Prohibited Transactions and Real Estate

If an IRA account holder purchases a share of stock, that IRA investor cannot live in the company headquarters of the stock they purchase.   The same is true about buying real estate inside one's IRA and it is called a prohibited transaction. 

The property cannot be owned prior to IRA purchase by:

- IRA account owner
- Spouse
- Family members (ancestors or lineal descendents)
- Other disqualified persons
- If the IRA account holder tries to buy a piece of real estate that they owned, and gets audited, the penalties are severe.

Property cannot be lived in or leased by:

- IRA account owner
- Family members (ancestors or lineal descendents)
- Other disqualified persons
- These are NOT second homes. No two week rule. Owners cannot stay in it.
- If you hear differently, (which you will)  they are committing a prohibited transaction.  Tell your borrower that they are getting bad information.

The Property cannot be:

- Leased by the investor’s business
- Business cannot be located in or on any part of the property
- Property must be for investment purposes only
- We repeat, borrower can't buy a building and run their business out of it.  If your borrower wants to do this, they would be committing a prohibited transaction.  Tell them and document it, because if they get audited, they may try to point the finger at you.

Prohibited Transactions Summary

- Sale, exchange, or leasing of any property between the IRA and a disqualified person
- Transfer to, or use by or for the benefit of, a disqualified person of the income or assets of the IRA
- An act by a disqualified fiduciary whereby he/she deals with the income or assets of the IRA in his/her own interest or for his/her own account
- Receipt of any consideration for his/her own personal account by any disqualified fiduciary for any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
- Lending money between the IRA account and a disqualified person or entity
- Furnishing of goods, services, or facilities between a plan and a disqualified person