Refinancing my current FHA to Commercial Financing
Member since 2022 · 9 posts · 3 votes
Refinancing my current FHA to Commercial Financing
Most Popular Reply
River SavaPro Member
Lender · USA · Member since 2022 · 1k+ posts · 1k+ votesQuote from @Carter Mayberry:
Quote from @River Sava:
Hey Carter -
With a DSCR loan, refinancing into an LLC is definitely possible, plus these loans don't require a full year of seasoning. DSCRs focus on the property's cash flow rather than your personal DTI. Happy to connect with you.
However, the property cannot be owner occupied. Are you currently living in it as well?
Yes, it is currently an FHA. I would be financing it to a DSCR and moving it to an llc at one. Yes i am living in one unit
Gotcha - just as a heads up, most non-qm DSCR lenders do not allow for owner occupied properties
15 Replies
- Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes1y
@Carter Mayberry Just commenting on the "free up my DTI" part. I have a few commercial loans that don't report to my personal credit. But when applying for a new conventional loan, it still has to be counted. The commercial loan should go on your personal Sch E of your tax return too, if the property is used as a rental, where the mortgage interest paid will show.
- 1yDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 666 votesWhat’s your current LTV? FHA may have allowed you finance up to 96.5% of the loan to start the hack. Without substantial renovation or repair / forced equity, I doubt that since almost 12 months ago you have enough to do a DSCR cash out refi. Since those only allow you to get up to 75% for the most part. Some lenders go 80LTV - tighter belt. But conventional is only 80LTV max as well. If you’re maxed on the first, maybe a heloc up to 90cltv is and option but again. It all depends where your current balance stands.
Quote from @Carter Mayberry:
Bought a 4 plex with an FHA loan under my personal name. Closed on it January 19th 2024. After renovating, I'm ready to refinance and push the property to my LLC. Am I going to run into any issues with this if I close before a full year? Any taxes or other issues that I may run into down the line?
The goal is to pull the 60k worth of equity out and free up my FHA & DTI so I can rinse and repeat. Just want to double check I'm not going to run into any issues. Thank you!
ProAlpha Capital56 Reviews - 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Carter Mayberry:
Bought a 4 plex with an FHA loan under my personal name. Closed on it January 19th 2024. After renovating, I'm ready to refinance and push the property to my LLC. Am I going to run into any issues with this if I close before a full year? Any taxes or other issues that I may run into down the line?
The goal is to pull the 60k worth of equity out and free up my FHA & DTI so I can rinse and repeat. Just want to double check I'm not going to run into any issues. Thank you!
Hi Carter,
Is this property leased out to a tenant? Are you living somewhere else? A commercial lender won't finance owner occupied residences. Getting a commercial loan won't free up your DTI since you would be a PG on the loan. You are required to disclose that debt, and it will be a fairly easy catch for an underwriter, even if it's not on your credit report.
When you say $60k worth of equity, What is your current LTV? Most DSCR lenders will not go past 80% LTV.
LuxePrivate Investments LLC 572 Reviews - 1yJake BakerBusiness MemberFlipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 695 votes
Refinancing your FHA loan into a commercial loan and transferring the property to your LLC is a solid strategy, but here are a few points to keep in mind:
FHA typically requires a one-year ownership seasoning period before refinancing is permitted. However, since you're switching to a commercial loan, this may not apply—check with your lender for specifics.
Be aware of closing costs and potential prepayment penalties tied to your FHA loan. Transferring ownership to your LLC might trigger transfer taxes or reassessment, depending on your local regulations.
Commercial lenders will evaluate your loan based on the property's cash flow (DSCR) rather than your personal income, which is great for freeing up your DTI. Ensure the property appraises at its updated post-renovation value to maximize the equity you can pull out.
A refinance isn't a taxable event, but transferring ownership to your LLC may affect depreciation or future capital gains. Consulting a CPA is a must to navigate these nuances.
Double-check these details with your lender and CPA to avoid surprises and keep scaling smoothly. Good luck with your next deal!
BookkeepingRE - Bookkeeping for Real Estate & Service-Based Businesses58 Reviews - 1yRiver SavaPro MemberLender · USA · Member since 2022 · 1k+ posts · 1k+ votes
Hey Carter -
With a DSCR loan, refinancing into an LLC is definitely possible, plus these loans don't require a full year of seasoning. DSCRs focus on the property's cash flow rather than your personal DTI. Happy to connect with you.However, the property cannot be owner occupied. Are you currently living in it as well?
- Member since 2022 · 9 posts · 3 votes1y
Quote from @Devin Peterson:
What’s your current LTV? FHA may have allowed you finance up to 96.5% of the loan to start the hack. Without substantial renovation or repair / forced equity, I doubt that since almost 12 months ago you have enough to do a DSCR cash out refi. Since those only allow you to get up to 75% for the most part. Some lenders go 80LTV - tighter belt. But conventional is only 80LTV max as well. If you’re maxed on the first, maybe a heloc up to 90cltv is and option but again. It all depends where your current balance stands.Quote from @Carter Mayberry:
Bought a 4 plex with an FHA loan under my personal name. Closed on it January 19th 2024. After renovating, I'm ready to refinance and push the property to my LLC. Am I going to run into any issues with this if I close before a full year? Any taxes or other issues that I may run into down the line?
The goal is to pull the 60k worth of equity out and free up my FHA & DTI so I can rinse and repeat. Just want to double check I'm not going to run into any issues. Thank you!
My current LTV is 58% right now. Current FHA loan is 225k and appraisal is 385k. Remodeled all the units and brought gross income from $30k to $43,500. The lender I'm talking with is planning on 75%, I just want to make sure their isn't anything with the FHA loan that says I cannot refinance and move to a LLC without consequences.
- Member since 2022 · 9 posts · 3 votes1y
Quote from @Erik Estrada:
Quote from @Carter Mayberry:
Bought a 4 plex with an FHA loan under my personal name. Closed on it January 19th 2024. After renovating, I'm ready to refinance and push the property to my LLC. Am I going to run into any issues with this if I close before a full year? Any taxes or other issues that I may run into down the line?
The goal is to pull the 60k worth of equity out and free up my FHA & DTI so I can rinse and repeat. Just want to double check I'm not going to run into any issues. Thank you!
Hi Carter,
Is this property leased out to a tenant? Are you living somewhere else? A commercial lender won't finance owner occupied residences. Getting a commercial loan won't free up your DTI since you would be a PG on the loan. You are required to disclose that debt, and it will be a fairly easy catch for an underwriter, even if it's not on your credit report.
When you say $60k worth of equity, What is your current LTV? Most DSCR lenders will not go past 80% LTV.
Yes, 3/4 are rented. I am living in one unit but the lender is aware of this and said we can still move forward with it. Yes, I misspoke about the DTI. My debt on this home will show, but so will the rental income from it. LTV at this point is 58% ish.
- Member since 2022 · 9 posts · 3 votes1y
Quote from @Jake Baker:
Refinancing your FHA loan into a commercial loan and transferring the property to your LLC is a solid strategy, but here are a few points to keep in mind:
FHA typically requires a one-year ownership seasoning period before refinancing is permitted. However, since you're switching to a commercial loan, this may not apply—check with your lender for specifics.
Be aware of closing costs and potential prepayment penalties tied to your FHA loan. Transferring ownership to your LLC might trigger transfer taxes or reassessment, depending on your local regulations.
Commercial lenders will evaluate your loan based on the property's cash flow (DSCR) rather than your personal income, which is great for freeing up your DTI. Ensure the property appraises at its updated post-renovation value to maximize the equity you can pull out.
A refinance isn't a taxable event, but transferring ownership to your LLC may affect depreciation or future capital gains. Consulting a CPA is a must to navigate these nuances.
Double-check these details with your lender and CPA to avoid surprises and keep scaling smoothly. Good luck with your next deal!
Awesome, thank you. I wasn't sure if asking my FHA lender about switching it to commercial will raise red flags. Sounds like they could have different PPP or fees that go along with refinancing with a different lender. I appreciate you pointing out the taxes and future depreciation or capital gains.
- Member since 2022 · 9 posts · 3 votes1y
Quote from @River Sava:
Hey Carter -
With a DSCR loan, refinancing into an LLC is definitely possible, plus these loans don't require a full year of seasoning. DSCRs focus on the property's cash flow rather than your personal DTI. Happy to connect with you.However, the property cannot be owner occupied. Are you currently living in it as well?
Yes, it is currently an FHA. I would be financing it to a DSCR and moving it to an llc at one. Yes i am living in one unit
- 1yDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 666 votes
Quote from @Carter Mayberry:
Quote from @Devin Peterson:
What’s your current LTV? FHA may have allowed you finance up to 96.5% of the loan to start the hack. Without substantial renovation or repair / forced equity, I doubt that since almost 12 months ago you have enough to do a DSCR cash out refi. Since those only allow you to get up to 75% for the most part. Some lenders go 80LTV - tighter belt. But conventional is only 80LTV max as well. If you’re maxed on the first, maybe a heloc up to 90cltv is and option but again. It all depends where your current balance stands.Quote from @Carter Mayberry:
Bought a 4 plex with an FHA loan under my personal name. Closed on it January 19th 2024. After renovating, I'm ready to refinance and push the property to my LLC. Am I going to run into any issues with this if I close before a full year? Any taxes or other issues that I may run into down the line?
The goal is to pull the 60k worth of equity out and free up my FHA & DTI so I can rinse and repeat. Just want to double check I'm not going to run into any issues. Thank you!
My current LTV is 58% right now. Current FHA loan is 225k and appraisal is 385k. Remodeled all the units and brought gross income from $30k to $43,500. The lender I'm talking with is planning on 75%, I just want to make sure their isn't anything with the FHA loan that says I cannot refinance and move to a LLC without consequences.
You should be fine. So long as the rent can’t debt service. I would get a few quotes from a couple lenders
ProAlpha Capital56 Reviews - 1yRiver SavaPro MemberLender · USA · Member since 2022 · 1k+ posts · 1k+ votes
Quote from @Carter Mayberry:
Quote from @River Sava:
Hey Carter -
With a DSCR loan, refinancing into an LLC is definitely possible, plus these loans don't require a full year of seasoning. DSCRs focus on the property's cash flow rather than your personal DTI. Happy to connect with you.However, the property cannot be owner occupied. Are you currently living in it as well?
Yes, it is currently an FHA. I would be financing it to a DSCR and moving it to an llc at one. Yes i am living in one unit
Gotcha - just as a heads up, most non-qm DSCR lenders do not allow for owner occupied properties
- 1yBrittany MinocchiBusiness MemberLender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
You should "intend" to occupy a property for a year with FHA, which it sounds like you'd be doing by the time it were to close. If you're refinancing to a business purpose loan that's totally fine, but chances are good you'll need a lease in place for the unit you were occupying so the lender feels confident that it's strictly going to be used as an investment property. Now if you didn't refinance rented that unit out before living in it for a year and changed your insurance policy to a commercial one, that could be problematic (just to give an example).
Brittany Minocchi - Barrett Financial Group, LLC522 Reviews - 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Carter Mayberry:
Quote from @Erik Estrada:
Quote from @Carter Mayberry:
Bought a 4 plex with an FHA loan under my personal name. Closed on it January 19th 2024. After renovating, I'm ready to refinance and push the property to my LLC. Am I going to run into any issues with this if I close before a full year? Any taxes or other issues that I may run into down the line?
The goal is to pull the 60k worth of equity out and free up my FHA & DTI so I can rinse and repeat. Just want to double check I'm not going to run into any issues. Thank you!
Hi Carter,
Is this property leased out to a tenant? Are you living somewhere else? A commercial lender won't finance owner occupied residences. Getting a commercial loan won't free up your DTI since you would be a PG on the loan. You are required to disclose that debt, and it will be a fairly easy catch for an underwriter, even if it's not on your credit report.
When you say $60k worth of equity, What is your current LTV? Most DSCR lenders will not go past 80% LTV.
Yes, 3/4 are rented. I am living in one unit but the lender is aware of this and said we can still move forward with it. Yes, I misspoke about the DTI. My debt on this home will show, but so will the rental income from it. LTV at this point is 58% ish.
Are you talking to a commercial lender or a conventional lender? You cannot live in the property if you are financing it with a commercial loan.
LuxePrivate Investments LLC 572 Reviews - 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Erik Estrada:
Quote from @Carter Mayberry:
Quote from @Erik Estrada:
Quote from @Carter Mayberry:
Bought a 4 plex with an FHA loan under my personal name. Closed on it January 19th 2024. After renovating, I'm ready to refinance and push the property to my LLC. Am I going to run into any issues with this if I close before a full year? Any taxes or other issues that I may run into down the line?
The goal is to pull the 60k worth of equity out and free up my FHA & DTI so I can rinse and repeat. Just want to double check I'm not going to run into any issues. Thank you!
Hi Carter,
Is this property leased out to a tenant? Are you living somewhere else? A commercial lender won't finance owner occupied residences. Getting a commercial loan won't free up your DTI since you would be a PG on the loan. You are required to disclose that debt, and it will be a fairly easy catch for an underwriter, even if it's not on your credit report.
When you say $60k worth of equity, What is your current LTV? Most DSCR lenders will not go past 80% LTV.
Yes, 3/4 are rented. I am living in one unit but the lender is aware of this and said we can still move forward with it. Yes, I misspoke about the DTI. My debt on this home will show, but so will the rental income from it. LTV at this point is 58% ish.
Are you talking to a commercial lender or a conventional lender? You cannot live in the property if you are financing it with a commercial loan.
Everyone on here is saying that you can do it, but it's definitely not possible if you don't have a lease in place on the unit you are currently living in or can show you are living somewhere else with a utility bill or rental lease to demonstrate that you are not intending to live in the subject property. Huge red flag for DSCR lenders.
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