New to Real Estate · Chicago · Member since 2019 · 11 posts · 4 votes
Hi all,
In my recent HML shopping, only one is willing to lend to an Individual while the others require an Entity. As this is my first BRRRR, I'd like to cash-out refi with a conventional Fannie/Freddie lender after seasoning period while my DTI & 10 Fannie/Freddie loan limit supports it.
If I create the LLC and vest title in it to the HML's liking, how and when would I transfer ownership of the property to my Individual name to be eligible for a conventional refi? Could I do something like a quitclaim deed right after closing with the HML in order to allow 6 months of required "seasoning" by the conventional lender after the title transfer to my individual name? What are the risks? Anyone been through this?
I understand Private Money may eliminate this hassle, but for the purposes of education let's assume HML is my only financing available. Thank you all!
Lender · Portland, OR · Member since 2018 · 163 posts · 136 votes
6y
Hi Pablo!
Yup! Your plan is 100% doable. I've helped clients do exactly what you're looking to do.
The key is making sure your lender sets you up with a Fannie Mae loan, not Freddie Mac. Fannie Mae's guidelines explicitly recognize ownership through an LLC as part of the 6 months seasoning required prior to a cash-back refi.
It's important to note that the borrowers applying for the loan must have majority ownership or "control" of the LLC. I've not had a lot of luck documenting "control" outside of majority ownership, so I'd just make sure that you and any co-applicants have 51% or greater aggregate ownership in the LLC.
Freddie Mac does not see things the same way. They'd require you to transfer title to yourself 6 mos prior to making application for your refi.
Lender · Portland, OR · Member since 2018 · 163 posts · 136 votes
6y
Hi Pablo!
Yup! Your plan is 100% doable. I've helped clients do exactly what you're looking to do.
The key is making sure your lender sets you up with a Fannie Mae loan, not Freddie Mac. Fannie Mae's guidelines explicitly recognize ownership through an LLC as part of the 6 months seasoning required prior to a cash-back refi.
It's important to note that the borrowers applying for the loan must have majority ownership or "control" of the LLC. I've not had a lot of luck documenting "control" outside of majority ownership, so I'd just make sure that you and any co-applicants have 51% or greater aggregate ownership in the LLC.
Freddie Mac does not see things the same way. They'd require you to transfer title to yourself 6 mos prior to making application for your refi.
Lender · Portland, OR · Member since 2018 · 163 posts · 136 votes
6y
Additional thought: The above answer is me with my lender hat on.
On the flip side with regard to logistics...i'm currently doing cash back refi on a rental of my own, using a Fannie Mae loan. Title is in an LLC.
My underwriting approval (just got clearance to close) simply requires that I execute a deed transferring title to myself at closing.
While I'm signing that and my other loan docs, I'll execute a second deed to put title back in the name of the LLC after closing.
Once the loan funds, there's a simple process to obtain formal permission to put title back into the LLC. With that completed, I can record the deed back to the LLC with no concern over having my note called due to a due on sale clause.
Huge relief for me and many, many of my clients who've used LLCs for liability protection for years, and just had to hope the due on sale cause never came back to bite us.
Pablo I’m in the same boat as you. Dealing with the banks are a nightmare was wondering if going with a HTM is worth it just because of getting deals at a faster pace. What are the rates of a 1 year bridge loan?
Additional thought: The above answer is me with my lender hat on.
On the flip side with regard to logistics...i'm currently doing cash back refi on a rental of my own, using a Fannie Mae loan. Title is in an LLC.
My underwriting approval (just got clearance to close) simply requires that I execute a deed transferring title to myself at closing.
While I'm signing that and my other loan docs, I'll execute a second deed to put title back in the name of the LLC after closing.
Once the loan funds, there's a simple process to obtain formal permission to put title back into the LLC. With that completed, I can record the deed back to the LLC with no concern over having my note called due to a due on sale clause.
Huge relief for me and many, many of my clients who've used LLCs for liability protection for years, and just had to hope the due on sale cause never came back to bite us.
Julee
Hi Julee,
Thanks so much for the response. Good to know Fannie Mae lenders will include LLC ownership within the 6 months seasoning period and just ask to execute a deed transfer into your individual name to fund the loan.
However, can you clarify what the "simple process" is for "Once the loan funds, there's a simple process to obtain formal permission to put title back into the LLC. With that completed, I can record the deed back to the LLC with no concern over having my note called due to a due on sale clause."
And if that simple process is done, does that loan then count as 1 of 10 for your government backed loan limit? Thanks.
Lender · Portland, OR · Member since 2018 · 163 posts · 136 votes
6y
HI Pablo,
The nitty-gritty specifics will vary by loan servicer, but you just need to make a formal request and pay any fee required ($100 was the last I saw). Upon receipt of permission you'll be notified that you must transfer title back to your own name to get a new loan and then you can record the deed.
And yes, any loan in your name (even if title is held in an LLC) is part of the 10 loan limit for agency loans.
Worth noting: the 10 loan limit only applies to the purchase of investment property and secondary residences. If you're willing to be nomadic, you can house-hack your way to an infinite number of Fannie Mae or Freddie Mac loans.
The nitty-gritty specifics will vary by loan servicer, but you just need to make a formal request and pay any fee required ($100 was the last I saw). Upon receipt of permission you'll be notified that you must transfer title back to your own name to get a new loan and then you can record the deed.
And yes, any loan in your name (even if title is held in an LLC) is part of the 10 loan limit for agency loans.
Worth noting: the 10 loan limit only applies to the purchase of investment property and secondary residences. If you're willing to be nomadic, you can house-hack your way to an infinite number of Fannie Mae or Freddie Mac loans.
Cheers!
Julee
Julee,
Thank you for this clarification! I can see you have plenty of experience in the world of lending. I will send you a private email to further connect. Thanks.
Tinton Falls, NJ · Member since 2020 · 108 posts · 85 votes
6y
@Pablo Ramirez it is also important to note that in most cases, if you did quit claim deed into your personal name after closing with a HML, you'd be in a technical default. I'm not a lawyer, but a HML. The lender may never notice but a few things could trigger them to see it.
1. If you have a construction escrow, lenders may do a title run down before releasing any additional draws. They would see when they get that back.
2. If you had any late payments or exceeded maturity, many lenders would want a run down and see it here.
You'd be in technical default which they wouldn't necessarily act on, but may. It could also have a negative impact on your relationship with the lender, which can be really important in this space.
New to Real Estate · Chicago · Member since 2019 · 11 posts · 4 votes
6y
@Kyle Altenau
Hi Kyle,
You are absolutely right. This would only be an option assuming I've cleared it with the HML. Each will have their own requirements and risk tolerance. I appreciate you letting me know HMLs do still look at Title like conventional banks do!
Relationships are key. Now I am just figuring out what my refi lender options are, and much of that is contingent on how I vest title of the property. Would you have any recommendations for HMLs or conventional lenders in my situation?
Rental Property Investor · Brooklyn, NY · Member since 2019 · 106 posts · 47 votes
6y
@Pablo Ramirez perhaps I'm missing it, but are there specific reasons you want to refi under your personal name instead of getting a commercial loan and refinancing it under the LLC? Unless you plan on making it your primary residence, then in that case you can get a better rate, but otherwise, I'd just refi it under the LLC.
Side Note: If you can, when you're closing on it for the purchase, try to leave title open. It'll save you a few $$ when refinancing.
@Pablo Ramirez perhaps I'm missing it, but are there specific reasons you want to refi under your personal name instead of getting a commercial loan and refinancing it under the LLC? Unless you plan on making it your primary residence, then in that case you can get a better rate, but otherwise, I'd just refi it under the LLC.
Side Note: If you can, when you're closing on it for the purchase, try to leave title open. It'll save you a few $$ when refinancing.
Hi Ley,
I would be refinancing with a conventional Fannie-Mae backed lender as their terms are more attractive than a commercial loan, and conventional loans can be done on investment properties at terms still better than a commercial loan. It's just figuring out the timing of LLC/Personal name and which lenders allow what.