Cashout Refi; use Freddie/Fannie vs Commercial Mortgage? Q asked.

[Andrew C.]

I received the following message recently and thought I would share it since my response may assist others:

My response:

For conventional financing (Freddie / Fannie loans), there is something called delayed refinancing which means if you refinance (including cash-out), you are limited to the purchase price plus improvements. If you season the property for six months+ then you can go off the appraised value. Conventional lending is done in your personal name, but I'm told you can then deed the property to an LLC if you want. 75% LTV max on the loan.

However, you can put the property into an LLC and get commercial financing for the property. With commercial financing they don't follow Freddie/Fannie guidelines so some lenders don't require as much seasoning, some only require 24 hours to then use an appraisal for valuation vs original purchase price. Commercial financing generally requires title held in an LLC and the loan to be to an LLC (though some still require personal guarante on the loan). Lenders will generally loan up to 75% LTV.

Commercial loan rates will generally be much higher than conventional financing (say 6-8% vs 4%) for 30 year fixed. Commercial lenders sometimes have prepayment penalties for the first 3-5 years of the loan.

Andrew

I'm not a mortgage broker or lender, so if any professionals in this field find error in my statements above, please set the record straight.  The above is based off my experience in talking with many lenders over the years and obtaining about 25 loans (purchase/refi/etc) over the years.  

I hope this helps others.

(Note: I too was a little confused by the numbers stated in the original message, so tried to respond in general.)