FNMA mortgage qualification question?

Question

Hi All,

Having reached the 10 property limit for FNMA loans, if I refinance four of those properties with a commercial lender taking title under under a newly formed LLC, am I still able to use the positive cashflow of these properties as qualifying income, that is, if I go buy additional four under the conventional underwriting? Having removed them from my person name but still personally guaranteed by myself, could I buy 4 additional properties under FNMA investment property product?

Although these properties appeared on Sch E for well over 3 years, the newly formed LLC will lack the requisite two year history. I am dependent on the positive cashflow from those properties to meet the FNMA DTI guidelines and have been able to use it while they are under my personal name.

Thanks in advance.

Daniel Hennek · Answer

I suggest reading the link provided and you should have your answer and more context as well. To help... Guidelines state that properties counted for the maximum financed properties are 1-4 unit residential properties where the borrower is personally obligated on the mortgage. Guidelines state some exclusions as well, such as commercial real estate, multi family of 5 units or more, etc. Having a commercial loan does not make a property a commercial property. Having your LLC name slapped on title does not remove your personal obligation on the mortgage. Simply changing a name does not change the underlying fundamentals of your situation and playing name games doesn't circumvent guidelines. You're either personally obligated on the mortgage or not...

Ulric Donawa · Answer

Daniel,Thanks for your comment. I am clear about his statement. As a guarantor and not a borrower or co-borrower the purchaser using an entity (like an LLC) to acquire real estate is not reported on a credit bureau (or rather should not be reported on a credit bureau). So the purchaser's perception of his/her "personal obligation" may be different from his/her actual situation in relation to the debt via an LLC. However, at this stage we may be beginning to transgress on the turf of our friendly neighborhood lawyers. Since I am not a lawyer and don't have any legal training and am not attempting to dispense legal advise, I would defer to legal expertise beyond this point.

Daniel Hennek · Answer

Except that he stated he WOULD be personally obligated...

Ulric Donawa · Answer

The quote below is taken from Fannie Mae, B2-2-03, Multiple Financed Properties for the Same Borrower (09/01/2021)"The borrower is purchasing a second home and is personally obligated on his or her principal residence mortgage. Additionally, the borrower owns four two-unit investment properties that are financed in the name of a limited liability company (LLC) of which he or she has a 50% ownership. Because the borrower is not personally obligated on the mortgages securing the investment properties, they are not included in the property count and the result is only two financed properties."

Ulric Donawa · Answer

Jacob, The answer is yes. You are able to use the cashflow from these properties even though refinanced under an LLC. The cashflow does not go away. The fact that the lender changes and possible the debt service changes does not in any way negate the cashflow. Furthermore, by refinancing 4 of your FNMA loans into an LLC with a commercial lender frees up those 4 FNMA "slots" because the borrower in the case of those 4 loans is not you. The borrower is the LLC. I am a retired banker and now commercial loan broker that has looked at hundreds of deals. Please feel free to reach out if any more questions. Ulric

Daniel Hennek · Answer

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Daniel Hennek · Answer

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Ulric Donawa · Answer

Jacob, The answer is yes. The cash flow does not go away. Investment properties purchased in the name of an LLC obligate the LLC as borrower not the individual. Therefore, in this scenario, the borrower will free up 4 "slots" to obtain FNMA financing. Ulric Donawa

Ulric Donawa · Answer

Jacob,The answer is yes. You are able to use the cashflow from these properties even though refinanced under an LLC. The cashflow does not go away. The fact that the lender changes and possible the debt service changes does not in any way negate the cashflow. Furthermore, by refinancing 4 of your FNMA loans into an LLC with a commercial lender frees up those 4 FNMA "slots" because the borrower in the case of those 4 loans is not you. The borrower is the LLC. I am a retired banker and now commercial loan broker that has looked at hundreds of deals. Please feel free to reach out if any more questions.Ulric

Jacob Beg · Answer

@Daniel Hennek Thanks, that's helpful. Attempting to negotiate a non-recourse to avoid the personal obligation. I'll have a read of the guidelines.