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Updated about 8 years ago, 10/23/2016
LLC Cash Out Refinance in Maryland
I have some property in Baltimore City held under my LLC. I would like to do a cash out refinance, but when the properties were purchased, the title was recorded under the name of the LLC. This had been done for liability protection.
In speaking with a lender, I am told that the properties would need to be held in my name before the conventional loan could be closed. The lender explained that this is necessary in order to sell the loan to fannie mae.
The downside of this, is the that the state of Maryland requires that a transfer fee be paid on top of the nominal recording. The transfer fee would amount to the same cost as actually closing on the property. In fact, it would be like paying an additional two points for the loan. The loan is no points at 4.75.
So the dilemma is whether or not to pay for the transfer cost of holding title in my name verses an LLC in order to secure the loan, or to seek out a non recourse loan in order to preserve the current recording of the title.
Thanks in advance for your advice.
You could go the way of a commercial loan instead of a conventional loan. The loan terms wont be anywhere near as good as a conventional loan, but it is an alternative.
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Any additional advice for someone looking to go the commercial route? Requirements and/or recommend any lenders? I'm in the same position.
This is something that people talking about real estate investing finance rarely mention but It is one of most important issues. Does the lender finance LLCs or other entities?
An LLC or any other entity requires a commercial loan. The best place to get them is smaller local or regional banks. Since SFHs mean smaller loans, this can make it tougher to get these loans. The best thing to do is keep looking for and talking to these smaller local lenders. Sometimes these loans are available for a window of opportunity and then the window closes. This is why you need to keep in touch with the lenders.
The properties were purchased in the LLC's name.
@Account Closed and others, that may be true in some cases. But the main reason banks and traditional lenders don't give mortgages to LLCs is the secondary loan market. Fannie Mae, Freddie Mac etc. were created to help people buy homes, not to help businesses. They do not buy loans from banks that are made to LLCs.
The irony is sometimes a mortgage loan officer will tell you the bank doesn't finance LLCs but the commercial dept next door does them all day long.
how much would you have to pay for the transfer? I was looking to do a cash on one of my llc, but no bank would do it for a good rate. I ended financing one of units with my regular name. I got 4% rate for 30 years.
If you need any help securing financing please email, would love to be of assistance. There are a lot of options available to you
Originally posted by @Account Closed:
Some banks don't trust LLCs they like to see your personal name attach to the loan. Are there a reason you don't want to personal guarantee the loan?
There is no reason that I would not want to personally guarantee the loan. Instead, I wanted to primarily preserve the legal and liability protection that the LLC affords me compared to holding title in my own name as well as avoid the transfer fees.
Originally posted by @Ned Carey:
This is something that people talking about real estate investing finance rarely mention but It is one of most important issues. Does the lender finance LLCs or other entities?
An LLC or any other entity requires a commercial loan. The best place to get them is smaller local or regional banks. Since SFHs mean smaller loans, this can make it tougher to get these loans. The best thing to do is keep looking for and talking to these smaller local lenders. Sometimes these loans are available for a window of opportunity and then the window closes. This is why you need to keep in touch with the lenders.
Hi Ned,
Unfortunately, the lender does not finance LLC's or other entities. In this case, I have opted to hold title in my name in order to go through with the cash out refinance. I need to look at other means to protect myself from litigation.
The three legal scenarios that I understand are:
Door 1: Hold title in an LLC (either one to one ratio of LLC to property, or one to many of one LLC to many properties)
Door 2: Hold title in your own name but protect yourself legally with a blanket insurance policy
Door 3: Hold title in an LLC and hold a blanket insurance policy.
So I may opt for what's behind door number two.
Originally posted by @Elaine Gee:
how much would you have to pay for the transfer? I was looking to do a cash on one of my llc, but no bank would do it for a good rate. I ended financing one of units with my regular name. I got 4% rate for 30 years.
Hi Elaine,
I believe that the transfer would be about $795. That's a great rate! Who is your lender?
If you keep the property in a LLC, you have a few financing options:
1) Do a "delayed" financing, which will give you around 80% Loan to COST. They can be done within 6 months of purchase.
2) Go to a portfolio lender, who may require the property to season (6-12 months) but will finance for a slightly higher rate (around 5-5.5%) for 80% LTV
3) Get a commercial mortgage
4) Get a commercial LOC if you need the money short term but do not want to pay for debt service over the long term
5) Get private financing (terms will vary greatly but usually much higher than bank)
Originally posted by @Percy N.:
If you keep the property in a LLC, you have a few financing options:
1) Do a "delayed" financing, which will give you around 80% Loan to COST. They can be done within 6 months of purchase.
2) Go to a portfolio lender, who may require the property to season (6-12 months) but will finance for a slightly higher rate (around 5-5.5%) for 80% LTV
3) Get a commercial mortgage
4) Get a commercial LOC if you need the money short term but do not want to pay for debt service over the long term
5) Get private financing (terms will vary greatly but usually much higher than bank)
I ended up changing the title and doing a delayed financing.
All of the other options are extremely valuable. Thanks for the reply.
@Erick Garske How did you go about changing the title? How long was the process? Did you need to hire a lawyer?
In a similar situation right now and think changing title is probably my best option
I am in a similar situation. A single family home owned by an LLC (multiple partners) in Nevada. Paid all cash for it. The home has good rental income. Looking to take some cash out (around 70~80% of home value). Any guidance on lenders that could help us would be great. Thanks.
@Mike Waltman I ended up changing title as a condition of closing with the same title company used to originally close the loan
@Parag Dave The one lender that I originally was going to recommend to you does not lend in Nevada.
@Ned Carey I ended up changing title on these loans from the LLC to my own name. The process took about thirty days and was actually the most trouble free loan process that I have yet experienced. And on the upside I was reimbursed the cost of the title transfer for one of the properties since a mistake was made when the title was recorded.