Refinance - LLC to Conventional

[Ethan Edwards]

My business partner @Duran Villegas and I have 3 small multi-family investment properties in Memphis, Tennessee, held under the name of our LLC that we would like to refinance. Two tri-plexes and one duplex. One of the loans is hard money, and the other two are portfolio loans (7%, 5-fixed, 20 yr am, and 4.75%, 5-fixed, 20 yr am). We are looking to restructure the debt into longer term fixed conventional debt, which we are aware this can be done in our individual names. My business partner has one year of W2 and one year self-employment. The issue that we are running into is that conventional underwriting is requiring that my business partner show TWO years self-employment. We suggested qualifying the loan under one (my) income only (which exceeds the minimum income qualifications), but underwriting has indicated that both LLC members are required to qualify.

Has anyone else experienced this issue? We are open to suggestions or other lending options to restructure our debt on these properties. 

[Andrew Postell]

@Ethan Edwards some basic information here in case it is helpful to you:

In the lending world there are basically 2 types of loans for these properties - "Conforming" loans or "Portfolio" Loans.

A "Conforming" loan is a loan governed by Fannie Mae and Freddie Mac (if you recognize those names). You can this same loan from any bank. The rules to Fannie/Freddie loans is that you have to loan in a person's name. 30 year fixed rates here with a lower rate than other loan types. The rates and terms are better for these loan types but there's not much flexibility for the bank to make a decision - since it's not their money. So if you wanted to use this loan type and just lend in your name you could. You would just have to close in your name. Closing in an LLC is not an option here but you could close in your name and switch back to the LLC after closing.

A "Portfolio" loan is a loan that comes from the bank's own portfolio of money - thus the name.  So the bank makes the call.  These loans could be easier to qualify for but the terms are different than a conventional loan.  Sometimes the rates are adjustable, sometimes they are higher rates, sometimes these are 15 year loans....and often they are all three of these.  And since the bank makes their own decision on their own money...each and every bank will have slightly different loan rules.  You would literally have to call each and every bank to find out the rules to each and every portfolio loan out there.

I'm putting this information here in case it is helpful to you in some way or if someone else stumbles upon this topic.  This is a very common issue facing many investors. If the previous post does not pan out my recommendation would be to post this in the "Tennessee" forum here on Bigger Pockets to see what banks some local investors use or to just call some smaller banks close to the properties or to search for some mortgage brokers in the area.  A mortgage broker has relationships with many different banks.  

Hope this helps!