How to refinance a duplex bought using hard money under an LLC?

Question

Our original plan was to buy the duplex and house hack with an owner occupied mortgage. However we haven’t been approved for a conventional mortgage. We are self employed real estate investors, with 7 years experience flipping houses.

We had to use our hard money lender to buy the duplex. We used an LLC at 25% down with interest at 9%. The cost of the property is $645 with total potential rental income after some cosmetic renovations of at least $5,500 p/m.

We will live in one side and rent the other for $3,000pm then look to refinance asap. Ideally we want to cash out as much as possible.

How easy should this be and what would be the best terms for refinancing a loan under an LLC?

As we are planning on living there, should we start making regular rental payments ourself into the LLC as it's not technically owner occupied?

Would we have a better chance of getting an owner occupancy mortgage in our names once we have a tenant?

Greg Scott · Answer

You cannot get a conventional mortgage if you are holding the property in an LLC. It is one of the downsides of using LLCs. If you want to get a conventional mortgage, you would need to transfer the property into your name and then wait 6 months.Alternatively, you can refi with a bank loan while keeping your property in the LLC. The rate and terms just won't be as good. However, it should be much lower than the 9% you are paying.If your LLC is a pass-through entity, there is no point in paying rent. You are just moving funds from one pocket to another.

Stephanie P. · Answer

Hey LauraThere are a few things that need clarification from a lender's perspective. Please don't take offense.There's no such thing as "technically owner occupied"; either you live there or you don't. The LLC doesn't make a difference to a lender because you're more than likely a member of the LLC and a personal guarantor on the loan.When you got the hard money loan, did you tell the HML that you were going to live there? Most will not loan on a rehab loan for owner occupied.If you don't qualify for a conventional loan, you probably won't qualify for an FHA backed loan either.Your solutions are:Continue living in the place where you were living when you bought the duplex and get a DSCR loan. After the property is stabilized and you've owned it for 6 months, you can get favorable terms and cash out.Use a bank statement loan for owner occupied and hopefully you have enough deposits to go full doc.That's about it without committing mortgage fraud.Stephanie

Nick Belsky · Answer

@Laura MarinMost lenders will want 6 months of seasoning. There are a few I know if that will do it at 4 months.Cheers!

Timothy Hero · Answer

I'm a mortgage broker in the private sector. Since you live on the property, it's considered an investment property to the non-qm industry. Since it's an LLC, you're restricted with conventional banks.

Nick Belsky · Answer

@Laura MarinOMG... you can most likely refi out of the HML into a 30 year fixed loan under your LLC. Won't likely get rates as low as conventional but you can definitely get it much lower than 9% and be fully amortized in a fixed rate loan. The only real differences between some of these loans compared to conventional is that they come with a Pre-Payment Penalty (usually between 3-5 years) and the cost of the loans is a few points higher. You still have cash out options as well. Normally 70-75LTV, but a few lenders will go to 80LTV in certain situations. Being an owner occupied duplex will add a degree of difficulty as many lenders don't like to mix primary and investments. Have you looked at Non-QM loans? If you've get reasonable banking records, you may qualify for a bank statement or asset based loan as well. The rates are higher than conventional but can be had in the 4's and 5's and can be used on primary, seconds, and investments. If you are house hacking, you may want to look into an FHA refinance as well... maybe you already have?Either way, you have options, it sounds like you need to find a lender or broker who can help you narrow down your options.Cheers!

Laura Marin · Answer

Hi Danielle, thank you for your response. Before we bought the duplex we were speaking with 2 brokers trying to get a conventional mortgage. It was taking a long time with them going back and forth over the accounts only to be denied, one mentioned about a commercial loan but we never discused further as by then we were under contract and had started the process with the HML. Im expecting a call from Finance of America tomorrow, hopefully they can find a solution for us. I did a little research and they sound like a good option.

Danielle Jackson · Answer

Laura - do you have a lender/broker relationship? If not, I might suggest finding one. They are coming up with new investor friendly programs all the time, and brokers will have access to multiple programs available. Agree with @Nick Belsky in that you may run into an issue with the mixed use. Good luck!

Laura Marin · Answer

Hi Nick thank you for the response. If I go down the route of a ABL or a the fixed loan under the LLC, is there a seasoning time? Do I have to wait 6 months or can I apply now?

Laura Marin · Answer

thank you for your response