Structuring conventional financing with a 50/50 business partner?

[Scott Schaecher]

Hey BP community! Question regarding conventional financing when a business partner is involved. I have several SF's, and my brother does as well. We are looking to partner together on some 2-4 multi-family units, but aren't quite clear on how we should approach bank financing. Because we're going for conventional financing, an LLC isn't an option. How have you all handled financing with more than one individual involved? Does one of us sign as primary and other as secondary? Both as co-signers? Just one of us sign? I also understand there are FNMA limits on how many conventional loans one can take. If we're both co-signers on 2 loans, does that count for each of us as two out of our maximum (10)? If so, would it be better for one of us to take on 1 mortgage and the other take on the second to avoid the double whammy? Thanks for any advice!

[Ralph R.]

Scott Schaecher Joshua Fulenwider You cannot quit claim a property financed by a conventional loan into an LLC unless it's a primary residence and done so for estate planning purposes. That's not the lenders rule it's Freddy and Fannie's rules. The lender cannot and in my experience will not put in writing permission to do so. NOW with that being said its up to the loan servicing agency to check on it and enforce it. Many people do it BUT, there's a rather lengthy thread on BP where an investor did this. It trips the due on sale clause when you sign the quit claim deed. The servicing agency got notice through the insurance company ( you gotta change the name on that too if you want coverage) that the tittle had been changed. Bank accelerated the note and the investor is stuck. It almost never happens but it sure can!! Is it worth the risk?? The question I have is this. Why jump through all the hoops to get a conventional loan huge cash reserves required, providing all the required loan statement etc etc when you can do a portfolio loan much easier? Yes the interest will be about 1% higher the am schedule is usually shorter (25 years) and they also want a re-fi in 7-10 years. Most investor loans re-fi or the property is sold every 7 years or so anyhow. The tenant pays the interest and your equity increases faster. Oh yeah they loan and most prefer to loan to a LLC. DTI is less critical and the properties ability to pay is more important. After 4 conventional loans they usually require 25% down same as the commercial loan. I don't feel the 1% interest is significant in the over all picture, especially with all the hoops you need to jump through to get the loan. I have 4commercial loans and 2 conventional loans. When I re-fied my primary it took 3 months and several times I spent a half day or more getting insurance dec's promissory notes and on and on and on. Not worth the extra hassle IMHO. RR