Recourse vs. Non-Recourse Loans: A Clear Guide for Real Estate Investors

If you’re a real estate investor exploring financing through a private lender, you may already know the process moves faster and more flexibly than traditional banks. But what happens after you submit your loan request? That’s where underwriting begins—a behind-the-scenes review that determines whether the lender will move forward, and under what terms.

Understanding what private lenders evaluate during the underwriting process can help borrowers prepare better loan packages, avoid delays, and ultimately close more deals. Here’s what you can expect.

1. Review of the Property and Deal Structure

Private lenders are primarily asset-based, which means the property itself plays a central role in the approval process. Underwriters will assess:

• Type of property (SFR, multifamily, commercial, etc.)
• Location and market dynamics
• Purchase price vs. current value
• Loan-to-value (LTV) or loan-to-cost (LTC) ratios
• Exit strategy (sale, refinance, or long-term hold)

The more clarity you provide about the deal—especially if it’s value-add or under construction—the smoother this review will go.

2. Analysis of Borrower Experience and Track Record

Private lenders typically work with real estate investors, not owner-occupants. That means experience matters.

The underwriting team will consider:

• How many similar projects you’ve completed
• Your ability to manage construction or renovations
• Your history of loan performance, particularly with short-term or bridge loans

Even if you’re newer to real estate, showing a strong team, a licensed contractor, or a third-party manager can help build credibility.

3. Financial Review and Credit Check

Unlike banks, private lenders don’t rely heavily on W-2 income or debt-to-income ratios—but they will still review:

• Credit reports for recent delinquencies, judgments, or bankruptcies
• Bank statements to confirm available funds for down payment and reserves
• Any active real estate loans or pending obligations

A borrower doesn’t need perfect credit, but demonstrating financial capacity to make monthly payments and carry the project to completion is important.

4. Project Scope and Use of Funds

If you’re applying for a construction, rehab, or bridge loan, the underwriter will closely review how you plan to use the funds.

This includes:

• A detailed scope of work (line-item budgets are ideal)
• An estimated timeline for project milestones
• Contractor bids or cost breakdowns (if available)

If the project involves a lease-up or repositioning, lenders will want to see a plan for stabilization and eventual exit.

5. Legal Entity Documentation and Title Review

Most investors borrow through LLCs or other entities. Underwriters will need:

• Entity formation documents
• Operating agreements
• Signers authorized to execute the loan

Simultaneously, title and escrow teams will begin reviewing:

• Preliminary title reports
• Existing liens or judgments
• Any encumbrances that could affect the lender’s position

If there are issues (e.g., unpaid taxes or mechanics liens), they’ll need to be resolved before closing.

6. Appraisal or Broker Opinion of Value

Depending on the lender, an appraisal or broker price opinion (BPO) may be ordered to confirm the property’s value. This ensures the loan amount is supported by market data.

Turnaround time for valuations can affect how quickly the deal moves, so borrowers should anticipate this step and plan accordingly.

Final Thoughts

Private loan underwriting is faster and more flexible than conventional lending, but it’s still a process that requires due diligence. The more organized and transparent you are—from your financials to your project plans—the smoother the review.

Understanding what underwriters are looking for not only increases your odds of approval, but also positions you as a more confident, credible investor. When the numbers make sense and the paperwork is in order, closing becomes a matter of logistics—not risk.

About TaliMar Financial 

TaliMar Financial is a private mortgage fund that offers investors the ability to participate in the growing market of private real estate debt. Since 2008, TaliMar Financial I has focused on providing real estate investors and operators with the capital they need to purchase, renovate, and operate residential and commercial properties. Our experienced executive team has funded over $450 million in short term debt secured on residential and commercial real estate primarily throughout Southern California and has returned over $40 million to investors in monthly distributions.