BiggerPockets

I would think that the more veteran players have their properties in LLCs and use commercial loans for their property acquisitions. There is no limit on the number of commercial loans you can have.

Mike

I have been trying to learn about this as well.

Seems to be one of those things you basically just need to go out and beat the bushes to find..each persons credit/finances are different and available products vary by location.

Any opinions on wether its better to develop a business entity's credit for this purpose, or simply keep your personal credit good and when you get a few properties with equity approach your local institutions?

What is the best way to obtain conventional financing if higher credit scores and lower debt to income ratio's are required along with the inability to claim rents received from investment properties as income on the application? I have looked at the option of using private lending for the purchase then refinance into conventional lending. The problem that I have encountered is being able to get around the new guidelines such as 6 month seasoning, debt to income and rental income to show a decent profit at the time of a refinance.

It seems that if a commercial loan can be used for residential investment property, the personal credit requirements do not become an issue therefore allowing the property to qualify for the loan. This seems to be a much more productive route to take if qualifications for a commercial are not as tight as conventional.

Are commercial blanket loans the only way to go or are there any other commercial loan alternatives?

I am looking into this as well, but I would ask you, why is it you think you can not use rental income? Banks due reduce the gross income by 25%, but the balance 75% is available to report, with my understanding.

Hello Everyone,

Thanks for the info. It has been very helpful. I have a PDF of the document that gives an explanation about not being able to use rental income of a second home purchase. However, I haven't figured out how to attach a document to this site so if you send me an email address, I will be more than happy to send this document to you.

Basically it seems to be a FHA guideline that has come into being due to people that may have been upside down on their home mortgage then decided to qualify for a new home at current market value. After the new home purchase was complete, the owner allowed the 1st home to go into foreclosure. So for an investor to qualify under this guideline, the borrower would have to prove that they can make the mortgage payment of both their primary residence and the investment property(s).

However, it seems that this rule has not taken full effect because the more I talk about this issue the more I hear about the ability to use 75% of the rental income.

Take Care!!

I have found that banks don't consider most LLCS as bankable. No income stream like employment gives. I've yet to find a bank that will loan to my LLC's and I have F&C properties a, but the LLC has no FICO or income stream they like.

Its Not been fun. I am a lender and all the changes have caused good people to stay on side lines and not do anything. Hard money to expensive, banks not lending and now market suffers. Oh well its been time for renewal anyway.

If anyone needs advice on investor loans, at least its getting easier to answer them with less options. The renting of the primary home is for real. However if you relocate it works like the old way.

Barry Ratliff
Southwest Funding

Originally posted by Alex Aronson

At my local REIA meeting, there was a sentiment from the more veteran players (particularly the mortgage brokers) that Fannie MAE/MAC will change mortgage allowance from 4 to 8 soon to help relief the number of foreclosures on the market

Alex,

As far as I am aware, Freddie Mac still has a 10 property rule. Only Fannie Mae has implemented a 4 property rule.

The problem you are encountering is that lenders are underwriting their loans to the more conservative standard --- Fannie Mae's 4 property rule.

Maluno Kindred wrote: Can a commercial loan be used to purchase residential property?

No.

When board members make statements as Michael did above, it'd be helpful to cite the source.

In the case of Fannie's property limit, here's the link.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0822.pdf

Here's the pertinent portion at page 7:

Fannie Mae is updating the guidelines to limit the number of financed properties to four when the mortgage being delivered to Fannie Mae is secured by a second home or investment property. This applies to mortgage loans that are manually underwritten and loan casefiles underwritten through DU.

Regarding ownership by an LLC or corporation, here is the text from Fannie's letter:

"In addition, Fannie Mae is clarifying that it does not consider the borrower to have either joint or total ownership in a property that is held in the name of a corporation, even if the borrower is the owner of the corporation. Such properties are not counted towards the four financed property limit."

The issue you are facing is that while Fannie says they will buy loans with more than 4 financed properties, few if any lenders are doing so. Fannie's letter 08-22 can be interpreted both ways (4 max or 10 max). Lenders are free to interpet the letter both ways, but with the current conservative underwriting standards, it appears that the majority of lenders are taking the most conservative interpretation of the updated guideline.

In the case of Freddie's property limit, here's the link.
http://www.freddiemac.com/sell/guide/bulletins/pdf/bll042208.pdf

Here's the pertinent portion at page 2.

For second home Mortgages with Freddie Mac Settlement Dates on or after this date, a Borrower may not own more than four 1- to- 4-unit properties that are financed, including the subject property.

For Investment Property Mortgages with Freddie Mac Settlement Dates on or after this date, a Borrower who owns more than one financed Investment Property may not own more than four 1- to 4-unit properties that are financed, including the subject property.

Michael Uelt... wrote: You can use commercial loans/bank loans/ in-house loans to purchase residential properties.

Commercial lenders lend only on commercial properties (5+ units), not residential properties. That's why they're called "commercial lenders." :-)