Refinance Conforming loans in the name of an LLC

11 Replies

I'm looking to do a cash out refinance on my 10 conforming investment property loans, but just learned that the FNMA rules do not allow cash out refinance for investors with over 4 loans. I am considering refinancing all the conforming loans with a local community bank. The new loans would be held in the name of an LLC (of which I am the sole member), and the bank would require me to personally garantee the loans. My plan is to refinance, take some cash out, and then buy 10 more houses using conforming loans. Is this possible, or would the personal garantee requried by my local bank somehow mean that I would still have 10 financed properties in my name? I'm concerned about going through the trouble to refinance with the local bank, but still being inelgible for conforming loans - based on the 10 loan limit.

@Jim Breedlove

Hi Jim, to get around the 4 property limit, you need to work with a community bank that doesn't sell their loans on the secondary market to Fannie Mae. These types of banks, which are often called portfolio lenders, lend their own money so they can set their own lending guidelines, which means the 4 property limitation may not apply. 

Note that some banks may do both Fannie Mae and portfolio lending.

When you're calling around, be really up front that you have more than 4 investment properties and you're looking to do cash out refinances on investment property and you can't qualify under the standard Fannie Mae guidelines. Don't let a loan officer drag you through the application process to just find out later than you won't qualify because they only do Fannie loans. Being really up front will hopefully save you some time. 

Because you have residential properties, you'll be doing residential financing, which means you'll likely have to do the loans in your own name instead of your LLC. If you want to do the loans in the name of the LLC, you're talking about commercial financing, which is a completely different animal - and something I'm not familiar with.

Also, if any of the properties were purchase in the last six months, you may be able to cash out refinance with a Fannie Mae loan under the "Delayed Financing Exception". See page 207 of the Fannie Mae lending guide:

https://www.fanniemae.com/content/guide/sel022415....

Hope this helps!

@Jim Breedlove

@Mark F. had some good points to relay. You do need to find a portfolio lender, one that can offer non-agency programs. If you are personally guaranteeing the loans, and you are sole member of your LLC, it is likely they will count against you if you go try to buy 10 more and want to obtain conventional financing.

As Mark stated, the way to get around this would be to get 'commercial financing,' or a commercial loan against the properties, the easiest way being to bundle the whole portfolio into 1 loan. I don't know what your particulars look like, but a loan like this might look like: close in your LLC, 1 loan, 10 properties wrapped up, could be non-recourse (depending on factors). Would still affect credit if you default, but it shouldn't count against you personally to go get conforming conventional financing. Rates would likely be higher though on loans like these. They won't be competing with 4% interest rates.

Thanks,

Jared Rine, UWL | 2094810514

Thanks, Jared and Mark.

Jared - you mentioned that I need to look for a portfolio lender that can offer "non-agency programs". Could you please elaborate on the meaning of "non-agency programs"?

-Jim

Originally posted by @Jim Breedlove :

Thanks, Jared and Mark.

Jared - you mentioned that I need to look for a portfolio lender that can offer "non-agency programs". Could you please elaborate on the meaning of "non-agency programs"?

-Jim

"Agency" financing is just another name for Fannie Mae financing. In other words, agency loans conform to the standard Fannie Mae guidelines, which have the 4-property limitation you're running into. You want to find somebody that does non-agency portfolio financing because they will underwrite to their own non-Fannie Mae guidelines. 

Hi @Jim Breedlove I actually just wrote a long post that addresses this. Just because you refinance your existing loans with a Portfolio lender would not suddenly make you eligible for 10 more FNMA loans - you have already hit the "financed properties" limit regardless of who holds the mortgage.

http://www.biggerpockets.com/forums/49/topics/184876-the-ultimate-guide-to-using-conventional-mortgages-to-expand-your-portfolio

Originally posted by @Michael Smith :

Hi @Jim Breedlove I actually just wrote a long post that addresses this. Just because you refinance your existing loans with a Portfolio lender would not suddenly make you eligible for 10 more FNMA loans - you have already hit the "financed properties" limit regardless of who holds the mortgage.

http://www.biggerpockets.com/forums/49/topics/184876-the-ultimate-guide-to-using-conventional-mortgages-to-expand-your-portfolio

Agreed, and to clarify, the 4 or 10-loan Fannie limitation only applies if you're seeking a Fannie Mae loan for one of your investment properties. If you're financing with a portfolio lender, they won't necessarily care how many financed investment properties you have. 

@Jim Breedlove - I am in the same situation as you and have been trying all year to pull money out. First, you need to know that if you own more than 25% of the LLC then FNMA counts it towards your number of properties. The only way to avoid this is to put it in a S-Corp or a C-Corp, which I have chosen not to because of the tax implications upon selling

You can try Pen-Fed credit Union who will do HELOC on investment properties.

There is also a newer loan program that lets you do unlimited loans, but the rate is about 6.5% - @Jeff Trevarthen wrote about it earlier this year http://www.biggerpockets.com/renewsblog/?p=68961

Medium second city real estate logo   white close upBrie Schmidt, Second City Real Estate | [email protected] | http://www.SecondCity-RE.com | IL Agent # 471.018287, WI Agent # 57846-90 | Podcast Guest on Show #132

@Brie Schmidt ,

I'm glad you revived this discussion because I am about to attempt to refinance some properties in an LLC as well. I am curious what you know about the Pen-Fed HELOC, rate and terms etc. I happen to be a Pen-Fed customer, mainly for their Visa gas card, 5% cash back :), so would be excited to learn that relationship may pay off in another manner.

Any idea what they look for? DTI, etc.

How hard is it to get? Credit Unions tend to be sticklers, at least NFCU is.

I looked at their website but didn't see any information. I am mainly looking to get these loans out of my name so will probably pursue the commercial route but this would be good information down the road or a possible alternative to my current plan.

Thanks,

Ed

Originally posted by @Edward B. :

@Brie Schmidt,

I'm glad you revived this discussion because I am about to attempt to refinance some properties in an LLC as well. I am curious what you know about the Pen-Fed HELOC, rate and terms etc. I happen to be a Pen-Fed customer, mainly for their Visa gas card, 5% cash back :), so would be excited to learn that relationship may pay off in another manner.

Any idea what they look for? DTI, etc.

How hard is it to get? Credit Unions tend to be sticklers, at least NFCU is.

I looked at their website but didn't see any information. I am mainly looking to get these loans out of my name so will probably pursue the commercial route but this would be good information down the road or a possible alternative to my current plan.

Thanks,

Ed

I have not done anything with PenFed yet, but I did apply. Here are the rates (at the bottom is the NOO ones)

https://www.penfed.org/home-equity-line-of-credit/

That is all I know at this point, sorry

Medium second city real estate logo   white close upBrie Schmidt, Second City Real Estate | [email protected] | http://www.SecondCity-RE.com | IL Agent # 471.018287, WI Agent # 57846-90 | Podcast Guest on Show #132

@Brie Schmidt to save the day!  I'll soon be in this situation but only because my hml won't lend to individuals moving forward.  I can't blame him but it puts me in a position of having to refinance houses fast that I acquire under my llc. JOY! Lol

p.s. I had planned on getting my 10 conventional before I had to do commercial type loans.