Seasoning requirements and LLC

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Seasoning requirements and LLC

Ryan Johnston
Investor · Garland, TX · Member since 2015 · 30 posts · 40 votes

We are about to do a cash-out refi on a property that we purchased with cash in the name of a single-member LLC which I own. I purchased the property over 6 months ago, and it's been in the LLC the whole time. Now that the property is rehabbed and rented and we've met the 6-month seasoning requirement, we want to cash out using a conventional loan. I am getting conflicting information at this point:

1) I have one lender saying that, in order to use a conventional Fannie/Freddie loan and because the property is in an LLC, we would have to transfer it back to us personally before close AND restart the 6-month waiting period. I was planning to transfer, but the big surprise is that the 6-month seasoning period starts over. Yikes!

2) I have another lender saying that, because the property has seasoned within the LLC for 6 months, we can transfer to ourselves personally and refi without delay

Obviously, the 2nd is what I want to hear, but if the 1st is true, I need to know. Have you had experience to this end? Curious to get your thoughts!

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Charlie Fitzgerald
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
9y

Different lenders have different overlays on the Fannie/Freddie guidelines.  It's not a one size fits all world in conventional lending.

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  • Andy D.
    Investor · Zürich, Zürich · Member since 2016 · 292 posts · 115 votes
    9y

    Is #2 also F/F? But, really, if one lender tells you it's possible then they have looked at this matter and decided it's how they'll go about it. Unless, of course, the person representing the lender just blabbers meaninglessly, which, however, I hope is not the case. ;-) Then again, if it's one of the known big banks people...

    Get back to #2, ensure that they really will do it the way you have understood it and take it from there. You may want to specifically ask about F/F restrictions/requirements in that regard.

    For what it's worth: I have always only had a seasoning requirement of 3 months, not 6 (with F/F).

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  • Charlie Fitzgerald
    Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    9y

    Different lenders have different overlays on the Fannie/Freddie guidelines.  It's not a one size fits all world in conventional lending.

    3Reply
  • Ryan Johnston
    OP
    Investor · Garland, TX · Member since 2015 · 30 posts · 40 votes
    9y

    @Andy D., yes both lenders were advising re. a Fannie/Freddie loan.

    @Charlie Fitzgerald - Thanks.  I suppose the challenge is finding a lender who will do this!  The lender I'm using presently thought it was possible, but then when it got to underwriting they kicked it back and said we needed to re-title, wait six months, then come back.  Given the amount of time and paperwork involved in the process, it's daunting to think I could go that whole process several more times before finding someone who can make this happen!  Any suggestions?

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    9y

    @Ryan Johnston

    I was going to say exactly what Charlie Fitzgerald said.  It's all in the overlays.  We did a thread a while back with @Chris Mason and others defining the Fannie Mae seasoning requirement, but to generalize, the trick is to find the lender that will allow it.  Keep searching, they're out there.

    Please accept my colleague request.

    Thanks

    Stephanie

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  • Charlie Fitzgerald
    Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    9y

    Talk to a mortgage broker in your area that can look at several lenders at a time to see who will do this without making you wait the additional 6 months.

    0Reply
  • Ryan Johnston
    OP
    Investor · Garland, TX · Member since 2015 · 30 posts · 40 votes
    9y

    @Charlie Fitzgerald.  Thanks. Here's a new twist: I spoke to just such a lender this afternoon who felt he could make it happen.  I have another property in the same situation, except that this one has a private loan attached to it.  It'll be done seasoning in January.  The terms of the private loan are simple:  12% interest, 1 year, no monthly payments, just a lump-sum payoff at the end.  The broker said that, because the loan (secured with a mortgage) did not have monthly payments associated with it, that was likely going to prevent me from getting it refinanced.  He said that, had it had monthly payments where I could show proof of payments, they'd be fine.  Not understanding how this would impact things.  Could you speak to this?

    @Charlie Fitzgerald

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  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    9y

    @Ryan Johnston unfortunately the correct answer is #1. Fannie used to allow this , but has since updated their guidelines. Now the only way to do cash-out refi is to have title seasoned in your personal name for 6-months. So your options are:

    * Transfer title to personal name and restart the 6 month clock.

    * Keep title in LLC and get a residential portfolio loan (30 yr fixed, higher rates).

    * Keep title in LLC and get a commercial portfolio loan (5-7 yr balloon, market rates).

    [email protected]571-200-6180
    1Reply
  • Ryan Johnston
    OP
    Investor · Garland, TX · Member since 2015 · 30 posts · 40 votes
    9y

    @Charlie Fitzgerald and @Upen Patel (et al, but you guys in particular since you're lenders), let me throw another twist in and get your thoughts. My broker's underwriting department has suggested that a possible work-around would be to actually sell the property - that is, I would personally purchase the property from the LLC, thus getting financing by way of a sale, and then immediately after closing transfer the property back to the LLC. This seems like it'll never work, but underwriting was the one who suggested it... There could be capital gains considerations as well as "corporate veil" issues, but from a technical standpoint, is this even possible? Not asking so much "should" you, but "could" you (though I'm happy to hear the up/down on "should" too!). Thanks!

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  • Charlie Fitzgerald
    Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    9y

    It's possible but it has its own inherent risks as well. But honestly, most of the protection you think you have acquiring assets in the LLC don't exist in a legal battle any way. So, at this point, I would do what you have to do to acquire the asset and then get with an Asset Protection Attorney afterwards and have them guide you moving forward.

    1Reply
  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    9y

    @Ryan Johnston Buying from the LLC would a non-armslength transaction and cause a lot of scrutiny. It would smell fishy and a high potential of being denied. Further more, Fannie/Freddie loans are for individuals only. So if you do a transfer back to LLC, it could trigger the Due upon sale clause, and the bank will recall the loan.

    Also, keep in mind that will all this transfer form LLC to personal to LLC, you are making the county very happy. You will be paying taxes to the county. Depending on where the property is, this can be a hefty sum.

    [email protected]571-200-6180
    1Reply
  • Christopher B.
    Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
    9y

    Can you answer this?  

    Many people have said you can get the purchase price AND documented repairs/upgrades, as part of the Delayed Financing Exception. However, when I read the the Fannie Mae guideline, it does not mention repairs/upgrades. Can someone confirm? I don't see how BRRRR works if you can't finance the R-Repairs/Rehab. 

    "The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html)"

    0Reply
  • Ryan Johnston
    OP
    Investor · Garland, TX · Member since 2015 · 30 posts · 40 votes
    9y

    Guys, thanks so much.  Complicated stuff, and these are the answers I'm needing to make the best of an imperfect situation.  Grateful!

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