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Refinance Out of a LLC? Review the Obstacles.

Mortgage and Lending with iLoan - NMLS ID#1947845 NMLS 79048

Attempting to navigate the process of refinancing mortgages out of the name of a LLC and into your own name with a conventional mortgage can be a lot like walking across a minefield with a blindfold on.  Perhaps one of the main reasons for this is that the guidelines that affect these transactions have trickled out here and there, over a long period and have been amended periodically.  Here is a summary of guideline considerations to take into account when considering refinancing your investment property loans from a LLC into your own name:

  1. Are LLC’s eligible to be refinanced from the LLC to the individual owner’s name?
    1. Yes; so long as the person refinancing the loan has a documentable ownership stake of 25% or more in the LLC.
  2. How long do I have to own a property in the name of a LLC before I can refinance intomy own name?
    1. Fannie Mae requires that title be held to the property in the name of the LLC for a continuous timeline of a minimum of 6 months for partial eligibility but for full eligibility it would be 24 months.
  3. Fannie Mae limits the number of financed properties to 10. If I have several financed properties, which types of financed properties do and don’t count towards the 10 property limit?
    1. It’s easier to refer to the chart that show’s what is and isn’t included. See below.  When viewing the inset chart, note that sometimes it’s just a matter of changing the ownership structure of a certain property in order to meet the criteria of a property being excluded from the count toward the financed property limit (e.g. properties held in a S Corp don’t count)B2 2 03  Multiple Financed Properties for the Same Borrower  11 10 2014
  4. What percentage of the appraised value is eligible for financing?
    1. If you own 1-5 financed properties, 1 unit properties – 75%
    2. If you own 5-10 financed properties, 1 unit properties – 75% (unless it has been owned for less than 24 months in the LLC, then 50%)
    3. If you own 5-10 financed properties, 2-4 unit properties – 70% (unless it has been owned for less than 24 months in the LLC, then 50%)
  5. Can I get cash out when refinancing my loans on investment properties when I own 5 or fewer financed properties?
    1. Yes.
  6. Can I get cash out when refinancing my loans on investment properties when I own more than 5 financed properties?
    1. All of these transactions would have to be no cash out refinances.
    2. The only exception to that is in the case where someone is refinancing a property inside of 6 months of purchase and meets all of Fannie Mae’s Delayed Financing Exception (which is rare).
  7. What are the required cash reserves for these transactions?
    1. If you have more than 5 financed properties, the required reserves would be 6 months of the principal, interest, taxes and insurance (PITI) on all second home or investment properties (your primary residence wouldn’t count). There is no flexibility in this.  Let’s say for the sake of easy math that the PITI on each of your properties was 1000 dollars and you had 9 second home or investment properties.  You’d need to show the capacity of having 54000 dollars in cash reserves.
    2. If you have 5 or fewer financed properties, the required reserves would be 2 months of PITI per investment property and second home.
    3. Examples of assets that can be used for reserves include checking or savings accounts, investments in stocks, bonds, mutual funds, certificates of deposit, money market funds, trust accounts, the amount vested in a retirement savings account, the cash value of a vested life insurance policy as well as proceeds from a loan or line of credit secured by automobiles, artwork, collectibles, real estate, or financial assets, such as savings accounts, certificates of deposit, stocks, bonds, and 401(k) accounts. There are a couple “must know” caveats though.  Any loan or line of credit payment will need to be factored into the debt to income ratio .

What a piece of cake! Am I right? :) The long-term benefit of doing this can be fantastic since you’ll no longer have to rewrite your loans every time you have a balloon and start over at the beginning of your amortization schedule all over again.  Sometimes that almost feels like renting.  With these loans, you can set it and forget it.  Just remember to have a nerd as a loan officer helping you through the process.  You’re going to need one!

via: http://goo.gl/MLNfgT 

Posted by

Charles Dailey - Branch Manager, Loan Officer, Certified Military Housing Specialist - iLoan - NMLS ID# 79048 -  612.234.7283 - charles@charlesdailey.com

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