Trouble with cash out refi because property is under LLC?

Question

Back in March, my wife and I purchased our first rental property (turnkey SFR 3 BR 1 Bath) using credit cards through SeedCapital. Looking back, I wish I had known about Fund and Grow (or others like it) who can allegedly get you the same type of funding without affecting your personal credit score, but that's for a different forum.

We've been working with a loan officer from Citizens bank for our cash out refi so we can start working on the next deal and everything appeared to be in order, but he called us today and said there would be a problem getting approved for the mortgage since our LLC is listed as the owner on the title and not one of our personal names. I was confused by this because ever since I started learning about RE investing through books and podcasts, the general consensus was to purchase your properties under a LLC for liability reasons.

We've never heard of anyone running into this issue on any podcast so we're not completely sure how to navigate it. Our first instinct is simply to talk to another lender, but in case we run into the same problem, has anyone ever been where we are or know someone who has? Any input is appreciated. Thanks.

Kevin Romines · Answer

To add my 2 cent here. You have 2 or 3 choices here.

1) Quit claim the property to your personal name and then refinance using specifically a Fanny Mae loan. Why a Fannie Mae loan, because just over 1 year ago, Fannie Mae changed their rules and since then, they allow you to quit claim the title back to an LLC that you are the majority member of? No other lender has done this, so it must be a Fannie Mae loan.

2) You can do a cash out refinance with a Non-QM or Portfolio lender, with the LLC being on the loan and title, however you will be required to sign a personal guarantee.

3) You do a commercial loan in the name of the LLC and a personal guarantee may or may not be required.

I place them in that order as the rates on the Fannie Mae should be the best. The LTV on the Non-QM or Portfolio loan can be higher than what Fannie Mae will allow, but the rates will be slightly higher and both adjustable and fixed can be offered. Commercial is typically a 3/1, 5/1, 7/1 ARM so it could cause you to refinance in very short periods of time to avoid the adjustable part of the loan.

You need to work with a broker or a correspondent lender to find one that can offer all 3 options. Most lenders don't offer all 3, some rare lenders will offer all three. If you not sure who to go to, ask on here or call your local title companies and explain that you need a lender that does at least 2 of the 3 (Conventional & NonQM or Portfolio), they should know who in their area does these loans as they are the companies closing the loans for the lenders.

I hope this helps?

Kenneth Garrett · Answer

Account Closed

If you own the property in an LLC you will need commercial financing.  A residential mortgage is not allowed through an LLC.  Even with a commercial loan you will still be required to sign a personal guarantee.

The commercial mortgage has a higher rate but it is easier to get approved provided the property cash flows.  I use the BRRRR strategy and it works great.

Good Luck.

Andrew Postell · Answer

Account Closed you can absolutely take a cash out loan with a LLC on title.  Some banks just aren't very good at working with investors.  I would highly recommend trying a different bank here.  As others suggested you can either receive a "commercial" or "portfolio" type of loan.  Or even a Fannie Mae loan with the quit claim.  And if you go the Fannie route (which will have a better payment) you can just do the deed change on the day of closing. No need to do it before then if you are working with an investor friendly lender.

I would highly recommend that you ask these types of questions when interviewing a lender to make sure they can work with what we do as investors:

Questions for Lenders

• When do you start using rental income to help me qualify? (the      answer needs to be immediately)
• How long do you need me to be on title to refinance? (this is      important if you do need a short term loan to purchase then refinance out      - and the answer should be 1 day...very important that it is 1 day on      title is all that is needed to refinance)
• What is my minimum down payment required? (if      they only require 15% down on a single family home that is usually a      good sign that you are working with a flexible lender)
• Can I change title to my LLC? (just asked we discussed above)
• Do you sell your mortgages?
• What is your loan minimum?
• Can you explain to me what your reserve requirements are?

Hope this helps.  Good luck!

Eric Veronica · Answer

Account Closed you will need to quit claim from LLC to  you your personal name, close the loan in your name, and then quit claim back into the LLC after closing. Did Citizens Bank suggest this?

Eric Veronica · Answer

Account Closed not sure why Citizens Bank would have you wait 6 months. Sounds like that may be an overlay which is a more restrictive rule imposed by individual banks. It could also be a loan officer who hasn’t financed many investment properties.

Often times I have had my investor clients  quit claim from LLC to personal name, then close the refinance, then immediately quit claim deed  back into the LLC after the loan closes.

James Wise · Answer

If you're trying to buy 1-4 unit residential properties using financing you'll want to put them all in your name. The residential lenders have the best financing terms. You cannot beat a fixed 30 year mortgage. However they will not loan to LLCs. This leaves you with commercial lenders. The terms aren't nearly as good & most of them do not want residential properties in their portfolio.

James Galla · Answer

You should ask the lender about whether they could consider doing the loan with a personal guarantee. Lenders rarely loan money to LLCs unless they have significant assets and a strong history of independent success/management/etc.

Trouble with cash out refi because property is under LLC?

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