How to issue mortgage to myself so I can refinance at 80% rather than 75%

4 Replies

So I want to purchase a property with cash and then refinance immediately. If I do this I can only do a cash out refinance at 75% LTV. However, if I have a mortgage I can refinance at 80% LTV.

I don't have any private lenders to be able to do the initial purchase with otherwise I'd go that route. So I'm trying to figure out how I can issue a mortgage to myself (as a private lender) so I can keep the benefit of buying cash, and be able to refinance at the higher rate.

Is the only way to do this through an LLC?

Has anyone else ever done this?

@Drew Castleberry

I think you'll have to shop around banks and see what their seasoning requirements are - most will probably want to see you own it for 6-12 months. Also my understanding is that most banks (conventional financing) will not lend to an LLC. You may have to get a commercial loan with a higher rate and shorter term to do that. Again, shop around.

- Tom

@Tom S.

My lender I have been using does not require any seasoning. I have been utilizing a HML and refinancing immediately after closing. I am not asking about getting financing for an LLC. I am asking about lending to myself through an LLC and then refinancing to pay off the LLC and have the new refinanced mortgage in my name. This would allow me to refi at 80% LTV rather than 75% if I purchased cash.

Im not too sure how to accomplish what you are asking to do.  One way around this is if you could wait 6 months, then you could do a cash out refinance on an 80% ltv based on the new appraisal instead of the purchase price.   You of course have to find a bank to do that...but it is in line with the Fannie Mae lending guidelines.  Here is a link to the Fannie Mae Eligibility Matrix.  This little chart has been invaluable to me.

https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf

Hi Drew,

I was thinking about doing something similar as conventional lenders would not allow me to do a cash out refi, but they would do a refi without cash out all day long. So as long as I would somehow make a first lien appear on the property and then refi it, it would be OK! Crazy, right? I even explained this strategy to one lender and asked him if it would create any problem if the first lien was a commercial loan or a HML, and they said no, as long as there is a first deed of trust, it meets the guidelines (which is all these people really care about).

I ended up finding a lender who would do the cash out refi anyway after I called enough of them, so I didn't have to go with the above scheme, but my thinking at the time was that I wanted to use a real 3rd party for the loan, so that I couldn't be accused of fraud, so basically I was going to go to a HML. Perhaps you can talk to your usual HML and see if you can work out a deal where they charge you less point or something to help you out, and maybe you can loan the money back to them during the time that the lien stays on the house (while you're waiting for your refi to go through).

In your case though, you're only trying to optimize 5% of LTV, so the additional expenses of getting a real lien put onto the property may not be worth it. In my case, I was not getting any cash out at all due to Fannie/Freddie rules.

Jean

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