Refinance a house to pay back my personal HELOC

4 Replies

I purchased a bank owned SFH earlier this year and rehabbed it with money from my personal residence HELOC. The house is in an Llc and I am looking to finance the house to pay back my HELOC. So far in contacting local banks and credit unions, I have learned that credit unions won’t finance to an llc and banks are pretty limited. I have found one bank that will do a 20 year am with a 5 year refi at 5.5-6%. Another bank (that I have worked with on another house and the HELOC) will only loan about half of what would be needed to pay back the HELOC. Most are suggesting to take it out of the llc to get a 30 year with better terms and then transfer it over to the llc later. (I did this once with an approval letter from the bank to guarantee they wouldn’t call the loan).

I am looking for suggestions on what to do.
1) Just keep the house paying down the HELOC.
2) Find a bank to loan to the Llc with decent terms (suggestions for this)
3) take the house out of the llc and get conventional loan

Right now, my properties are there to pay themselves down. We do not live on the cash flow or use it. Eventually we will have these paid off to fund the next homes.

Thanks

I would rule out #1. HELOC interest rates fluctuate and most HELOCs have a balloon date. And, that might prevent you from moving out of your primary residence at a future point. Better to have fixed rate long term debt.

Which direction you choose to go on your refinance really depends on your risk tolerance.   

I used to put all my houses in LLCs until I heard a podcast with an insurance executive.  He noted that lawsuits against owners are fairly rare and in his 30 year career the max payout he ever saw was $1M.   That was enough for me.   I immediately obtained a $2M umbrella liability policy.  It covers not only my rentals but also things like car accidents.  It is worth the few hundred bucks each year.  I now keep all my remaining SF properties in my name or my wife's.

In contrast, I have a friend who is a serious investor who went the other way. He has every single house in its own LLC and those LLCs are owned by a master LLC. I believe he also has an umbrella policy too, so he is about as bullet proof as you can get.

Financing and paperwork is simpler the way I am doing it.  The way my friend does it lets him sleep better at night with better protection.

Many factors go into a decision like this for me. If you have multiple loans and plan on paying extra towards mortgages, I would keep HELOC and try to pay it off quickly rather than paying fees and a higher interest rate to switch. I like HELOCs because you can pay extra but then draw that money back out as needed.

If you do decide to keep the HELOC make sure you deduct it as a business expense in 2017 and not an itemized deduction for your personal residence. This will be important given potential tax changes in 2018 which will perhaps eliminate your use of mortgage interest paid on your personal home. Keep some documentation that makes it clear you used HELOC for business purposes (timing if HELOC with timing if expenses paid).

Thanks. We are putting extra into the HELOC, at least until we figure out what we want to do. Either way our goal would be to have it paid off in 5 years. The only major issue with that would be if we get a big jump in rates, which we would run into with a loan to the Llc anyway. Oh well, unless some great option pops up it looks like we will continue on as we are. Thank you for the input.

@Collin Smith In the lending world there are basically 2 types of loans for these properties - "Conforming" loans or "Portfolio" Loans.

A "Conforming" loan is a loan governed by Fannie Mae and Freddie Mac (if you recognize those names). You can get this same loan from any bank. The rules to Fannie/Freddie loans is that you have to loan in a person's name. 30 year fixed rates here with a lower rate than other loan types. The rates and terms are better for these loan types but there's not much flexibility for the bank to make a decision - since it's not their money. So if you wanted to use this loan type and just lend in your name you could. You would just have to close in your name. Closing in an LLC is not an option here but you could close in your name and switch back to the LLC after closing.

A "Portfolio" loan is a loan that comes from the bank's own portfolio of money - thus the name. So the bank makes the call. These loans could be easier to qualify for but the terms are different than a conventional loan. Sometimes the rates are adjustable, sometimes they are higher rates, sometimes these are 15 or 20 year loans....and often they are all three of these. And since the bank makes their own decision on their own money...each and every bank will have slightly different loan rules. You would literally have to call each and every bank to find out the rules to each and every portfolio loan out there.

I'm putting this information here in case it is helpful to you in some way or if someone else stumbles upon this topic. This is a very common issue facing many investors. 

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