Los Angeles, CA · Member since 2014 · 33 posts · 1 vote
Howdy –
I have 1 rental in Dallas, and 9 rentals in AZ.
All of the properties have FNMA financing and therefore, I’ve maxed out the 10 financed properties with FNMA.
I would like to continue obtaining FNMA financing, so the question is this:
Can I transfer any of the these properties into an LLC (that I would need to create), in order to free-up more slots for additional FNMA financing?
If not, are there any alternatives you could recommend?
I’m in contact with a commercial lender who has given me a reasonable quote for additional loans, but obviously I’d like to procure more FNMA backed financing if possible.
You may still run into issues, even with a portfolio loan. The rules we've come across is that, if you're a more than 20% owner of the LLC, the mortgaged properties still count against your overall 10 property max.
Before you proceed forward, talk to a mortgage broker and run your proposed scenario by him to see if that would be ok.
One way I'm working around it when I hit 10 properties is that all of the mortgages (rentals and primary) are in my name only. The next 10 will either be in my wife's name or my partner's name. This way we can have 30 mortgages before we hit the cap.
Transferring to a LLC will not free up more FNMA lending. Consider refinancing a few of your properties into a commercial portfolio loan then using FNMA financing on new purchases.
Ok, as mentioned I'm speaking to a portfolio lender now. He's quoting me 30 year fixed loans a 5.125%. Only problem is he wants to charge me 2 points plus $500 - $700 closing costs (not including appraisal and service fees).
What do you think of these loan terms? Curious what other investors are finding with portfolio lenders.
You may still run into issues, even with a portfolio loan. The rules we've come across is that, if you're a more than 20% owner of the LLC, the mortgaged properties still count against your overall 10 property max.
Before you proceed forward, talk to a mortgage broker and run your proposed scenario by him to see if that would be ok.
One way I'm working around it when I hit 10 properties is that all of the mortgages (rentals and primary) are in my name only. The next 10 will either be in my wife's name or my partner's name. This way we can have 30 mortgages before we hit the cap.
I believe it is a 10 loan max not a 10 property max.
That being said I think the portfolio loan is a viable option if they are all under one loan. That would free you up for 9 other loans.
One caveat is to make sure that each property has the ability to be released individually from the loan in the event you want to sell one. This would prevent you from having to pay off the entire portfolio loan just to sell one property in the portfolio.
Thank you, Lee. I'm a young buck and not yet married.
I just need to get this commercial lender down on the points he wants to charge me. other than that I don't think the fixed rate is unreasonable. I've been securing rates at 4.75% with FNMA.
I wonder if he's collecting the points, or if it's the investor he's selling the loans to. Probably both taking a cut.
@Billy Raz@Lee Huffman - You've both been slightly misinformed. Your respective loan officers or brokers can be forgiven because this guideline update is dated March 29, 2016 and most lenders are not as aggressive about keeping up and using the latest/greatest guidelines, as I am. From Fannie verbatim...
"
The financed property limit
applies to the number of one- to four-unit residential properties where the borrower is personally obligated on the mortgage(s);
applies to the total number of properties financed, not to the number of mortgages on the property or the number of mortgages sold to Fannie Mae;
includes the borrower’s principal residence if it is financed; and
is cumulative for all borrowers (though jointly financed properties are only counted once).
"
Note the part in bold. And I have a rhetorical question: If you find someone willing to lend to your LLC, are you personallyobligated on the mortgage and will it appear on your credit report?
Great question, Fannie Mae offers this example...
"
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 would not be included in the property count and the result is only two financed properties.
"
So the guidelines allow this. The trick will be finding a lender that does not have overlays jamming you up and getting in the way of you accomplishing your real estate investment goals. Some percentage of the time, someone in my profession saying it "can't" be done is actually someone trying to avoid admitting that there are overlays at play.
Another discrepancy that this clarifies is in regards to the borrowers principal residents. I was told from one broker that the owner-occupied principal residence does not count against the 10 FNMA max. According to this, so long as it’s financed, it does. Disappointing news.