Pros and cons of cross collateral loans
Member since 2023 · 24 posts · 7 votes
Pros and cons of cross collateral loans
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Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
3yNo you cannot borrow 100% on a cross, up to 80%.
FHA loans do not allow LLC vesting. Get that in writing whoever said it's fine.
9 Replies
- Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes3y
Cross collateralization generally is 80% loan to value on the initial property. Getting a residential appraisal with the comparables you need is difficult as not many mixed use properties under 4 units close in a given city. Get a realtor to pull some comps- closed sale with a loan in past three months with the same mixed use, unit count, and square footage in past three months.
Keep the existing loan until the cows come home 2.75 is almost like free. FHA with deed in LLC is a recipe for trouble, when you recorded the transfer deed to LLC it's considered a sale by the FHA/HUD rules. Also your insurance coverage had to remain in the person's name and loan number as a residential policy but the LLC changes the hazard insurance to need a commercial policy. If lender or servicer finds out that you aren't fully covered they will put force place insurance and they have the right to call the loan.
- Member since 2023 · 24 posts · 7 votes3yThank you! Yes I’m not sure how my lender got this property under an fha loan. Something about the residential space being more than 50% of the building. But I do pay commercial real estate taxes/ insurance/ and sewer. Only the mortgage is an fha.
Quote from @Caroline Gerardo:
Cross collateralization generally is 80% loan to value on the initial property. Getting a residential appraisal with the comparables you need is difficult as not many mixed use properties under 4 units close in a given city. Get a realtor to pull some comps- closed sale with a loan in past three months with the same mixed use, unit count, and square footage in past three months.
Keep the existing loan until the cows come home 2.75 is almost like free. FHA with deed in LLC is a recipe for trouble, when you recorded the transfer deed to LLC it's considered a sale by the FHA/HUD rules. Also your insurance coverage had to remain in the person's name and loan number as a residential policy but the LLC changes the hazard insurance to need a commercial policy. If lender or servicer finds out that you aren't fully covered they will put force place insurance and they have the right to call the loan.
I have talked to another lender and told them the whole situation. I just wanted more information on the cross collateral loan. From my understanding I keep my fha loan. But the new lender puts a lien on the current property and uses the equity for the down payment on the new property. So it’s 100% financed? - Member since 2023 · 24 posts · 7 votes3yMy mortgage company and insurance company knows it’s under an LLC as long as I’m an additional insurer on the policy it’s fine I’m told.
Quote from @Justin Chan:
Thank you! Yes I’m not sure how my lender got this property under an fha loan. Something about the residential space being more than 50% of the building. But I do pay commercial real estate taxes/ insurance/ and sewer. Only the mortgage is an fha.Quote from @Caroline Gerardo:
Cross collateralization generally is 80% loan to value on the initial property. Getting a residential appraisal with the comparables you need is difficult as not many mixed use properties under 4 units close in a given city. Get a realtor to pull some comps- closed sale with a loan in past three months with the same mixed use, unit count, and square footage in past three months.
Keep the existing loan until the cows come home 2.75 is almost like free. FHA with deed in LLC is a recipe for trouble, when you recorded the transfer deed to LLC it's considered a sale by the FHA/HUD rules. Also your insurance coverage had to remain in the person's name and loan number as a residential policy but the LLC changes the hazard insurance to need a commercial policy. If lender or servicer finds out that you aren't fully covered they will put force place insurance and they have the right to call the loan.
I have talked to another lender and told them the whole situation. I just wanted more information on the cross collateral loan. From my understanding I keep my fha loan. But the new lender puts a lien on the current property and uses the equity for the down payment on the new property. So it’s 100% financed? - Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes3y
I'm always a bit apprehensive to cross-collateralize, primarily because it might be difficult to do a partial release if you want to sell one of the properties that are involved. We just closed a construction loan where our borrower was building on three side-by-side-by-side lots. We built in a clause where they could pay 120% of the proportional amount to release each property as they sell. Definitely think ahead about that scenario if you decide to blanket multiple properties on one loan.
- Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes3y
No you cannot borrow 100% on a cross, up to 80%.
FHA loans do not allow LLC vesting. Get that in writing whoever said it's fine.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Justin Chan
What we have done in the past is do the loan and with a personal guarantee we have been able to do an indemnity deed on the other asset
For example we lent out money on a Brrr property to an LLC, did a personally guarantee and then an indemnity deed on another property so we were locked in that lien position on the other asset because it had substantial equity.
Upon completion of rehab the borrower will refinance which will satisfy the loan
Happy to chat further
7e investments53 Reviews - Member since 2023 · 24 posts · 7 votes3yThank you for that insight!
Quote from @Doug Smith:
I'm always a bit apprehensive to cross-collateralize, primarily because it might be difficult to do a partial release if you want to sell one of the properties that are involved. We just closed a construction loan where our borrower was building on three side-by-side-by-side lots. We built in a clause where they could pay 120% of the proportional amount to release each property as they sell. Definitely think ahead about that scenario if you decide to blanket multiple properties on one loan.
- Member since 2023 · 24 posts · 7 votes3yThat is a very interesting approach. That’s sounds like a strategy I would be interested in for sure!
Quote from @Chris Seveney:
@Justin Chan
What we have done in the past is do the loan and with a personal guarantee we have been able to do an indemnity deed on the other asset
For example we lent out money on a Brrr property to an LLC, did a personally guarantee and then an indemnity deed on another property so we were locked in that lien position on the other asset because it had substantial equity.
Upon completion of rehab the borrower will refinance which will satisfy the loan
Happy to chat further
- Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes3y
To add on to posts above, I am not sure you can cross-collateralize a mixed-use property with residential assets (SFR, 1-4 unit), since residential assets are securitized as different mortgaged back securities than commercial assets.
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