Land contract to refinance

2 Replies

Hello BP,

I am buying a duplex on land contract in Wisconsin (seller financing) for 8.25% interest. The term will be 30 years. This is not my first property, but it will be my first time financing through a land contract. I'm putting only 5% into the deal, with no closing costs. It will cashflow fairly well and will generate a higher return for my money without weighing down my DTI since it won't be reported to the credit bureaus.

I would like to refinance out of the high interest rate into my personal name or into my LLC that I recently created, which I'm sure would require commercial financing at a higher rate than a loan in my personal name.

How would refinancing out of this land contract work? Do I need to have 20% - 25% of the loan paid off before refinancing? Would I be looking at a rate-and-term refinance or a cash-out refinance? How does the bank view these things? The lender is a very close acquaintance of mine and we're going to write contracts and follow legalities, but we're both flexible on how it's structured.

    A land contract is a quite unique vehicle, so I am not sure if the lender is technically even looking at it as a re-fi or as a purchase loan. If it is a purchase loan you'll need 25% down; otherwise they will be looking at the lower of the appraisal or purchase price plus improvements and then finance 75% of that. After seasoning it will be just the appraised value.

    Rates will be around 4% for residential 30 year and 5% for a commercial 5 year loan. I don't think it makes much sense to put sub million dollar properties in it's own LLC, you can bundle them or hold them in your personal name and insure well; that's just my personal opinion, not a recommendation.

    If you use a Fannie Mae loan, you can go up to 75% LTV as a rate and term refinance, meaning no cash out. You are not allowed to have cash out when refinancing a land contract. You would need to have the property in your personal name to refinance, however Fannie Mae allows you to transfer title to an LLC that is majority owned by the borrowers. See below:

    The other alternative is a portfolio loan at as high as 85% cash out and there may be a 0-6 month seasoning time on title to get the cash out depending on which investor is used for the loan. The rates tend o be about 2% higher than a Fanne Mae loan, but you can also get the loan in the name of the LLC with a personal guarantee.

    I hope this helps?