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Nonrecourse lending versus recourse loans: The difference

There is one major difference between nonrecourse and recourse loans that you should know before you decide to take one. The primary difference is that in a nonrecourse loan, the lender cannot seek assets other than the home or property in the case that you default.

With a typical recourse loan, the lender can seek the collateral put down to obtain the loan as well as other assets, like your home or property. The lender can and may seek any property of yours that it could sell to make the debt right.

As a consumer, it's in your best interests to have a loan that protects you in some way. If you put down collateral, you want to know that the lender can only go after that and your home if you default, not every other asset you own.

It makes sense that lenders prefer recourse loans while borrowers almost exclusively want to obtain nonrecourse loans. Keep in mind, though, that nonrecourse loans tend to have higher interest rates and are harder to obtain. They're usually only obtainable by those with great credit. If you don't have stellar credit, you may not have the option to obtain a nonrecourse loan at all.

It's sometimes worth holding out for a nonrecourse mortgage loan if you're concerned about falling behind on a mortgage or losing your assets because of defaulting, but if there is little or no risk of that happening, then a recourse or nonrecourse loan will both work for your purposes and help you obtain the property you want to buy.

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