FHA OwnerOcc 4-plex - Purchase from my LLC???

Question

Hello All,

I currently own and rent nine properties, 3 of which are financed (conventional), 6 of which are paid for. I have found a lender that will allow me to do a cash-our refi on the 6 and hold title to all 6, but initiate only one loan... let's call this loan "A".

With the proceeds from Loan A, I plan to purchase a lot, on which I will build a 4-plex (I possess these skills from my previous career).

I want to finance the 4-plex and live in one unit... so OO FHA with 3.5% down is my plan. Let's call this loan "B". My questions are these:

If my LLC builds/owns the 4-plex can I (as an individual) purchase the 4-plex with an FHA loan?

Will this be viewed as a refi?

Lastly, if I currently have 3 conventional mortgages, will Loan A (one loan, but 6 properties held for collateral) be viewed as: 4 "mortgaged properties"?... 9 "mortgaged properties"?...  just 3 "mortgaged properties" (assuming I get Loan A in the name of an LLC and said loan isn't reported to my personal credit report)?

I'm trying to make certain I am in a position to qualify for Loan B when the time comes. I would hate to build this 4-plex only to find out the best I could do is 70% or 75% LTV.

Thanks in advance for the replies!

Dustin

Stephanie Medellin · Answer

If you have a "business relationship" with the seller of the property (your LLC), it would be considered a non arms length transaction, or identity of interest in FHA terms, and you'd be limited to 85% LTV.  If you transferred the property to yourself and later did a cash out refinance with an FHA loan, you'd also be limited to 85% LTV.

Also, newly constructed properties less than a year old are limited to 90% LTV for FHA (although the 85% would still apply in this case).

For your other question regarding the number of financed properties for Fannie Mae loans, 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).  It applies to the total of properties financed, not to the number of mortgages on the property or the number of mortgages. This number is cumulative for all borrowers (though jointly financed properties are only counted once).  Properties owned and financed in the name of an LLC where you are not personally obligated on the loan do not count in this limit.

Dustin Palls · Answer

@Stephanie Irto Thanks again for the clarification!

Account Closed I would suggest finding a good broker that knows the regs that's willing to go through a ton of "what-ifs" with you... call every one in the book if you have to :)

But yeah, I've already got some good info at BP too. Thanks everyone.

Wayne Brooks · Answer

Ditto @Stephanie Irto on both points.  You'll have 9 mortgaged properties....9 properties with 2 mortgages each, counts the same as one blanket loan on 9 properties.

Davon Lowery · Answer

where would one learn these specific lending scenarios, book, BP, etc...?

Stephanie Medellin · Answer

@Dustin Palls  Now when you add in a personal guarantee, that's not specifically addressed in Fannie Mae's guidelines so you may need to do some more investigation there.  Some people may interpret that as being "personally obligated."  Hopefully someone else can jump in on that point.

An example of counting properties from Fannie Mae's site:

"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 would not be included in the property count and the result is only two financed properties."

As for the 4-plex, yes it is just one property even though it has 4 units.

Dustin Palls · Answer

@Stephanie Irto So I now have 3 "mortgaged properties", I then take out the blanket loan under the LLC and STILL have 3 "mortgaged properties" (LLC owns and owes for loan but I personally guarantee), then I build and finance the 4-plex, obtain permanent OO conventional financing...

Do I then have 4 "mortgaged properties"? Each unit doesn't count as a "property" correct?

By the way, the 4-plex will be deeded as one property/parcel/lot... i.e. I will never have the option of selling just one unit for example.

THANKS AGAIN!Dustin

Stephanie Medellin · Answer

@Dustin Palls  It is my understanding that any 1-4 unit financed property counts in the total if the property and the loan are under your name, regardless of how many mortgages are on the properties.  If the property is owned in an LLC and the LLC takes out a loan, then it would be considered commercial and not count against you.

If you are taking out a blanket loan on your other 6 properties under an LLC, then yes it sounds like you will only have 3 "mortgaged properties" when seeking financing on your 4-plex.

Dustin Palls · Answer

Ok, thank you both... still a bit confused.

My plan is to now go conventional OO... I will build the 4-plex via construction loan, then obtain permanent financing... 80% LTV which will be like putting only 5%-10% down assuming the appraisal comes in where I think it will. I won't have to deal with FHA... thought I was going to get away with only having 3.5% in the deal.

I had a broker tell me that the 3 conventional/conforming loans I currently have count as "3 mortgaged properties" (obviously) but that I will STILL have only "3 mortgaged properties" since the cross-collateralizing loan which I am seeking won't be a "residential", i.e. Fannie/Freddie product (rather he called it a "commercial" loan)... that it won't be "counted" in the sum total of my mortgaged properties at all... and that essentially the "4 mortgaged properties" or "10 mortgaged properties" guidelines apply only to conforming loans... By the way, my LLC will own and take out the cross-collateralizing loan on the properties mentioned above.

What do you make of that?

Thanks again!

Stephanie Medellin · Answer

@Dustin Palls

FHA OwnerOcc 4-plex - Purchase from my LLC???

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