I purchased a few rental houses about six years ago, and want to refinance them to take advantage of these low rates. The deeds are in the name of my LLC now, but if I re-deed the properties in my personal name, I can get a good rate on the mortgages (that's what the broker is telling me.)
Here's the problem: I'm being told I have to wait 6 months after re-deeding before I can refinance. They're calling it an "ownership seasoning" period.
Can anyone provide any insight on this 6 month "ownership seasoning" requirement, and maybe give me some suggestions on how I can avoid it? Is it a federal requirement, or is it just a "good business practice" that bankers adhere to? I'd really, really like to take advantage of these rates, and I'd like to start saving money NOW instead of 6 months from now...
You best bet is to start speaking with lenders and mortgage brokers in your area. We don't know enough about your personal situation to speculate.
I've not priced a loan in a couple of months, so I'm not sure exactly where rates are. If you see ads for 30 year fixed mortgages, assume those are for OO borrower with stellar credit and low DTIs. If you have plenty of cash in the bank for reserves, 750+ credit, and enough income to keep your DTI low (don't know how low, maybe under 40-45%?), you will end up with four or fewer mortgaged properties, and you're refinancing at 70% or lower LTVs you should be able to get about a point higher than those advertised rates. Miss on any of those criteria and you rate is going to be higher.
i'm not sure about this....you may be able to get an owner occupied interest rate for one property, but no way for six at one time...maybe he's planning on you refinancing one at a time over a period of a few years....still not sure if that's the right way to go...commercial rates are low as well right now...what interest rate are you paying currently?
Find a new bank you can surpass the ownership requirements with an underwriter that knows what there doing. You can just prove you own the LLC this kind of stuff is done all the time. I think Fannie limits you to 4 now. Not 100% sure they seem to change that ever other month. But Bryan is right commercial will work too. But you would be lucky to find a 5 year balloon. Most are 3 at most.
(First of all, thanks for the responses, Bryan and Bryan. What are the odds?)
The properties in question are three single-family rental homes. Current LTV is about 80%, but maybe as low as 55%, depending on how the property is appraised; (NCDOT just bought some right of way from me for a per-acre price that would put my LTV at about 55%. Using Zillow.com's Zestimates, the LTV is around 80%.) I'm currently paying 7% fixed on a 30 year mortgage (the former owner is financing).
It was my understanding, based on preliminary discussions with a commercial broker, that the best I could do with a commercial loan was 6.5%, and only 20 year amortization, which wouldn't help me. I really need to get to about 5%, maybe 5.25% (the lower the better), in order for things to improve.
Bryan Balk, I'm inclined to agree with your comments about "this kind of stuff is done all the time". I just don't know where to look, which is why I'm here. Should I talk to community banks? Who in the banks should I try to get in touch with?
Deffinetly talk to community banks they have access to the same lenders but are often just easier to work with. Just pick up the phone book and call banks to see what they can do. Unfortunately more than half will lie to you an tell you they can get the deal done but after paying for the appraisal and other fees you may learn that they can't. That is the going rate for commercial if you shop around you mat find 25 year am. Where are you located? We work with some lenders that are nationwide. I may be able to send you to the right place. Like usual your income and credit will have to be in align with traditional lenders.
make sure to follow up on this forum and let us know how it goes...i still think it's going to be difficult to get owner occupied interest rates for investment properties (especially a few at a time)...btw, anything fixed for 30 years, i would just at right now, even the 7%...good luck.
Those terms look like portfolio loan terms. Sounds like you're looking for conventional loan terms, and even then getting to 5% on an investment property is a stretch. OO rates are lower than that, but investors always pay higher rates.
Unfortunately, the six month time limit you're bumping into is a Fannie Mae guideline. By definition, Fannie's (and Freddie's) rules are what make the loan "conventional". If you use a portfolio lender, you should be able to avoid those rules, but you'll pay a higher rate and have a shorter term. If you want the lower rates and longer terms offered on conventional loans, you have to play by the conventional rules.
You also need to take a hard look at values. Extrapolating from a DOT purchase sounds like you're just taking per-acre and multiplying for the whole size. Zillow is likely to be high. Fannie guidelines limit you to 75% LTV, assuming you own four or fewer mortgaged properties. You need to get an agent to pull some comps and find out where you really stand before you start paying for appraisals and get a ugly surprise. Assume an appraiser is going to use the lower end of the comps, not the better ones. The trick with appraisals these days is to avoid the appraiser using a short sale and two REOs for comps.
Bryan, thanks again for the comments, and I will let you know how it goes...
Jon, thanks a lot for the insight. I really appreciate it. You wrote:
I'm willing to "play by those rules" because I do need those terms. In your estimation, is it reasonable to think that I could get "conventional" rates (=~5.25% for 30 years), even though this is investment property?
Here's another scenario: I have a VA loan eligibility, and could conceivably purchase the largest rental property at 100% of appraised value for my own personal residence (I know I'd have to move into it, and that would be fine.) At that point, the front two houses would have a 50% LTV, even at 10% below Zillow's estimates. Could I get "conventional" rates on those two rentals then?
Sorry to be such a leech, but I just don't have any other resources to help me with this...
You best bet is to start speaking with lenders and mortgage brokers in your area. We don't know enough about your personal situation to speculate.
I've not priced a loan in a couple of months, so I'm not sure exactly where rates are. If you see ads for 30 year fixed mortgages, assume those are for OO borrower with stellar credit and low DTIs. If you have plenty of cash in the bank for reserves, 750+ credit, and enough income to keep your DTI low (don't know how low, maybe under 40-45%?), you will end up with four or fewer mortgaged properties, and you're refinancing at 70% or lower LTVs you should be able to get about a point higher than those advertised rates. Miss on any of those criteria and you rate is going to be higher.
Owner Occupied conventional (resellable into the secondary market), 30-yr fixed, look for 4.25%-4.375% and zero points.
Investment property conventional (resellable into the secondary market, LTV limited to 75%, possibly 80% with a yield premium with certain lenders), 30-yr fixed - there is another 1.75 pts required by investors. This can normally be paid up front to get OO rates or you can take a rate that is higher by .625% to .75% (average but varies by loan size).
Quick update: I was never able to find a way around the six month ownership seasoning, so I just had to wait. (It's a good thing I did wait- the rates have continued to drop...)
The appraisals came back around 81% LTV, which ruled out most of the local banks (they were all looking for 75% LTV or better.) I found a mortgage banker who was able to get this deal done by doing owner-occupied (95% LTV) on one of the three houses, which lowered the two other houses to 75% LTV.
Which brings up a new question: If I do this deal and get owner occupied financing on one of the houses, what happens if I don't move into that house? How can they find out that I haven't moved into it, and if they do, would they call the loan?
Which brings up a new question: If I do this deal and get owner occupied financing on one of the houses, what happens if I don't move into that house? How can they find out that I haven't moved into it, and if they do, would they call the loan?
I believe its called fraud. Penalties can be harse and it's not worth it...
@Jon Holdman. John, although the 6 months seasoning period is a Fannie Mae guideline, the non-conventional lenders usually have a 30 day or 90 day seasoning period too. Do you know the banks’ purpose for a seasoning period at all?
@Jeffrey Levy no, I don't definitively know why there is this seasoning period. I think it is intended to give the bank some security about the value of the property and the ability of the borrower to repay the loan.
@Jon Holdman. Thanks. I originally thought the same, but found a few non-conventional lenders that wait 30 days and 60 days, which seems strange. This is even if you have paid cash for the property. I think that your guess might apply to Fannie Mae, since it is 6 months whereas there might be a different reason for non-conventional lenders requiring only 30 days even when paying cash. I was just thinking that if we can know for sure, then we could address the lender’s concern and allowing immediate refis.
Wow, 8 years ago?? This is kind of what Bigger Pockets is great for. You research topics from years and years ago. However, on this one the rules have changed.
@Jon Holdman and @Jeffrey Levy the "seasoning" rule was an older Fannie/Freddie rule. This was during a time when the foreclosures on investment properties was sky-high. And a lot of it was from flipping ventures. You can now refinance from day 1 of owning a property. No more seasoning.
Please don't confuse this rule with the "6 month cash out" rule. That rule is still in place but you can absolutely, 100% refinance with Fannie/Freddie with no seasoning required.