Delayed financing exemption to pay off loan to myself?

[Aaron Hale]

Hey BP,

I am self-employed and recently purchased a property in cash with cash from my business account. With the BRRRR strategy in mind. The rehab costs have crept past what I had budgeted and am looking for some creative was to complete the project.

My first question is; what documentation do I need to show that the business loaned me the funds so that I can deduct them from my taxes? Second, since I paid cash, could I qualify for Fannie Mae’s delayed financing exemption cash-out mortgage now to complete the rehab?

Thanks all! 

[Albert Bui]

Originally posted by @Aaron Hale:

Hey BP,

I am self-employed and recently purchased a property in cash with cash from my business account. With the BRRRR strategy in mind. The rehab costs have crept past what I had budgeted and am looking for some creative was to complete the project.

My first question is; what documentation do I need to show that the business loaned me the funds so that I can deduct them from my taxes? Second, since I paid cash, could I qualify for Fannie Mae’s delayed financing exemption cash-out mortgage now to complete the rehab?

Thanks all! 

In your scenario its going to look wonky if you have no 1099int form to your business for interest paid and if your business didnt report that income then you have no note or loan to your business (atleast officially). If you have no loan on the books, then for all intensive purposes you bought the property with cash from your business. When doing a DFE or delayed financing exception you will be wiring that money back into your business checking account at closing if the business account originally dispersed the funds to purchase the property initially.

The above is the financial and accounting end of it and the logistics.

However, on the lending end if you need more funds because you're going over budget then you'll need sufficient income, assets/reserves, and credit to qualify for the new mortgage.

Depending on how the property is currently titled you may have to QCD (quit claim deed) that property back into your name to close.

This of course brings many other issues such as taxes and bookkeeping back into the foreground so consult with your tax pro on the implications of this as it may mistakenly create a taxable event depending on your business entity.

Back to the lending end, assuming this is not a portfolio loan, you'll be closing your conventional loan into your personal name or your living trust.

The funds will be wired to the entity or account that purchased the property in the first place (back to business acct if original cash purchase was from business acct).

Let me know if you have any questions on the above.