Investor · Hollister, CA · Member since 2016 · 39 posts · 10 votes
I have a situation that I would be very appreciative if I could get some help with. My family and I are relocating to a different state and I was recently denied a loan for a primary residence because my DTI was too high. We own (6) rental properties, all conventional financing, and I am switching jobs/states in which I will be taking a reduction in salary. We will be selling our primary residence in order to help lower my DTI and we are being told from our lender that it still won't be enough. So my idea is to reach out to a hard money lender. With the hard money lender, I will need to setup an LLC to hold the properties and refinance through them. My question is: once the properties are refinanced through the hard money lender and in the LLC, will this lower my debt to income? I am hoping that it would in order for me to qualify for a loan to purchase our primary residence. Again any advice or answers would be very much appreciated.
@Vincent Ballew Common misconception is that moving properties into a LLC removes them from your personal DTI. That is false. If you are the personal guarantor of that loan you are still financially obligated to pay that back. Most LLCs are not set up to be the only thing backing the loan. When you go to get your primary they will find those homes are connected to you and asked for their documents. The only way to offset this is to report your rental income on tax returns and use that to offset and mortgages on them.
If I understand you correctly, you want to get a hard money loan on a primary residence that you want to live in. Every hard money lender I have worked with before avoids financing non-investment properties. I believe one of the reasons is there is special licensing that is required to lend on primary residences. It might be better to rent until you increase your income.
@Charles Carillo Sorry for the confusion. The hard money loan would be used to refinance my investment properties in an LLC. I'm hoping that once the properties are transferred to my LLC, my DTI would lower in order to qualify for conventional financing for my new primary residence.
@Vincent Ballew Common misconception is that moving properties into a LLC removes them from your personal DTI. That is false. If you are the personal guarantor of that loan you are still financially obligated to pay that back. Most LLCs are not set up to be the only thing backing the loan. When you go to get your primary they will find those homes are connected to you and asked for their documents. The only way to offset this is to report your rental income on tax returns and use that to offset and mortgages on them.
@Vincent Ballew you might want to look into wrapping all of your investment properties into one commercial loan that will be under your LLC name. I am running into that same thing as well and have been talking with local banks in my area about better options so I can continue to grow.
@Nicholas Covington Thank you very much for the information! and that was what I was worried about. What if at this time my wife becomes secures the loans? We have not set up the LLC yet and I was thinking if we were to put them in her name that maybe this could be the work around. I am not sure if they will let her secure the loan through the LLC since she does not have any W2 income. Do you happen to know if this scenario would work?
@Andre Taylor Thank you very much I will look into that option as well. We will need to move in the next couple months so I can start the new job and its pretty frustrating not being able to get a loan on a primary residence because of rentals. Again thank you for the information and good luck with your situation as well!
@Vincent Ballew the only way this would work is if she took title of the properties by herself. Which is possible if they are income producing. You are welcome to connect with me and we can chat about it.