Can you get a home equity loan without a full time job?

Question

Greetings Real Estate enthusiasts! My questions is in regards to financing deals using equity loans, cash-out refi or equity line of credit. If I decide to go full time with RE investing after I've acquiring 20+ cash flowing properties, will banks have trouble funding me deals because I don't have a full time job? Or will my previous history bypass that? I'd love to get your opinion on this.

Jeff Dulla · Answer

You would be an owner of the LLC. If you are the only one, 100% owner. As owner you have the ability to claim the net income from the LLC on your tax returns or to take distributions on your returns. Either way, you personally will go qualify for any future loans. You have to have them in your name. Once you close, you can have an attorney move them into an LLC. You will not be able to get residential financing on properties if you are trying to close the loan in LLC. They will force you to get a commercial/business loan.

Samuel Coicou · Answer

Awesome, thank you for the great and quick feedback Jeff. I appreciate your efforts in answering all of my questions. =)

Samuel Coicou · Answer

Hard Money lender right? I'm trying to buy a house cash first so I'll stay away from that now. But okay, I think I get it. I should get the properties through my name and then afterwards move them to the LLC. That way I'll have the advantages of residential mortgage.

Jeff Dulla · Answer

Not typically but you could. The best, lowest cost mortgage options would allow you to use your LLC to qualify, but the loan needs to go under your name. Not the LLC. If you move title into the LLC after, that is up to you.

There are some lenders that will lend to LLCs and for that matter, may lend as well without you having income right now. I can tell you about one if you PM me. But the rates are much higher than what you would find normally.

Samuel Coicou · Answer

Okay so that means the real question is, would be is it possible to get a residential mortgage as an LLC?

Jeff Dulla · Answer

I wouldn't say that. You could get a commercial loan. From my experience, they are often not a line of credit. More often than not they are multi-year balloon loans that you need to redo every few years. Typically they work more like an ARM.

Residential mortgages - first mortgage purchase, cash out refinance, HELOC, etc, are used most often for a good reason, they are typically the most stable and can be the cheapest route. However, Commercial loans have an advantage of getting around some of the rules/restrictions that Fannie/Freddie/FHA/VA/Jumbo pose. But they do that at a the expense of stability and usually cost.

Samuel Coicou · Answer

So just to clarify. I will be able to get an equity loan as an LLC but it will be financed as a business loan as opposed though residential financing. Is that correct?

Samuel Coicou · Answer

Thanks @Jeff Dulla.

So if I hear you right, essentially I can move all my properties into an LLC and then get equity loans through the LLC.

Or should I make myself an "employee" of the LLC in which I tell them my salary is the annual some of rental income? Are both viable options?

Jeff Dulla · Answer

Samuel - by then hopefully you will have an LLC set up. The earlier, the better. Banks will look for a two year history of income (whether that be rental income on the Schedule E or income that flows from an LLC). At the point that you have two years or longer, the banks will take whatever income generated by your LLC and use that. Caution - there is going to be an equation used in order to determine the proper income amount for underwriting.  Even after you have established this, there are ways you can make sure your income will be used properly. Often, banks will only give you credit for income that flows through from a distribution on a K-1. However, they can give you credit for simply net income on a K-1, provided your company meets a solvency requirement. There is quite a lot to it and something you should have completely vetted out before you quit your job while trying to acquire more properties.

Can you get a home equity loan without a full time job?

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