How a Nonrecourse Mortgage Works

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One term you may encounter while seeking your home loan is nonrecourse mortgage. This term simply refers to the type of assets or collateral a lender can reclaim if you default on your mortgage. A nonrecourse loan allows a lender to keep only the collateral mentioned in the loan and cannot go after any other personal assets.

Recourse Mortgage vs. Nonrecourse Mortgage

In a recourse mortgage, all of your income and assets guarantee the loan. If you default, your lender can reclaim your house, but if the value of your house is too low, they can seize your other assets (i.e. your car or bank accounts) as well to pay off the balance. They can also claim a portion of your wages.

With a nonrecourse mortgage, however, your lender can only reclaim your house if you default on your loan. If the value of your home is less than the amount of your loan, your lender has to accept that shortfall as their own loss, and has to let you keep your other assets.

You may also choose to offer some other asset as collateral for your loan instead when you apply, such as a car or a boat. In this instance, if you default on your loan, the lender must take that asset instead.

Applying for a Nonrecourse Mortgage

Nonrecourse mortgages are only offered in certain states. If they are available in your state, apply for them as you would any other loan.