All Forum Posts by: Brit F.

Sorry for not being clear...I'm referring to CO-refi or HML secured with property you already own, so that you can use the delayed financing exception. For example:

• You own Property A and do a CO-refi
  
• Use proceeds to buy Property B as cash buyer and do a CO-Refi on Property B with the exception.  Use proceeds of Property B to pay back Property A's loan
• Property B still has a loan
• When you're ready to buy Property C, do another CO-refi on Property A

In the example above, you could replace 'CO-refi' with 'HML' on Property A, and it works the same way. Agree you'd have to compare total cost of things to see which one makes sense in your situation.

All that said, since you have a willing lender for HELOC's on investment property, that's probably a better way to go to meet your short term financing needs.

Sure thing, I only mean to suggest that you could pay back a 30-yr mortgage early, just like how you expect to pay back a short-term private/hard money loan asap.  Most people don't because we think of 30-yr loans as permanent financing, but you could pay it back anytime (typically without a prepayment penalty).  In this way, you'd be using a 30-yr mortgage like a hard money loan.  Whether or not it makes sense depends on the cost of financing and terms for each.  It's an unusual application of a 30-yr mortgage, for sure.

To your other question:

"Has anyone actually purchased with HELOC funds and obtained a mortgage soon after, using the delayed financing
exception? And if so, can you confirm that mortgage lender paid directly to the HELOC, then you still had full access to the HELOC with no consequences?"

Yes, I've done it.  My Refi lender wrote a paper check directly to my HELOC bank, which I hand delivered to them and they applied it to my balance.  I used the HELOC again a short while later.

@Gary Parilis,

Yes, you're correct on #1 & #2. As far as doing another HELOC vs the Refi, if you're thinking of doing a HELOC on an investment property, it's possible, but sometimes difficult to find a willing lender. If/when you find one, hang on to them like they are your best friend. Lots of threads on BP about HELOCs on investment property. In contrast, if you're talking about a HELOC on a primary or secondary home, go for it.

And yes, you're correct, on the private/hard money usage with the exception.  But, by the same logic, you could use the cheaper option of a regular cash-out Refi from another property in the same way.  The downside is that it'll take longer to close the traditional Refi, and the loan terms won't be as flexible as private/hard money.  Point being: based on the high cost of private/hard money, just make sure you've exhausted all other options first.

@Gary Parilis,

The delayed financing exception is what allows you to skip the 6-month seasoning period, and it requires that your purchase money isn't secured by the subject property. So, you can absolutely use an existing HELOC as your source since it's secured by a different property that you already own. And yes, the Refi lender will probably want to send money directly to the HELOC to pay it back.

Don't use private or hard money for long-term financing (not sure if this is what you were suggesting).  You could potentially use private money or hard money for the purchase and then Refi with a traditional lender using the exception, as long as the private/hard source funds aren't secured by the subject property.

Another potential downside for the delayed financing exception is that you can only Refi what you paid for the property. Meaning, if you used a HELOC to fund both the purchase & rehab, when you Refi, it'll only cover the purchase, but the Rehab amount will still be outstanding. This also forces you to park extra equity in the property, which you may or may not be comfortable with.

If you want to Refi and get both purchase & rehab costs back, plus squeeze out some the added value, you'll have to wait 6 mo's.

You can definitely use the exception with BRRRR, as long as you're willing to keep a little more equity in each property. On the other hand, if you're an investor who wants to have max leverage on every property, the exception will work against you.

Slight clarification: Since 2017, Fannie allows transfers to LLC under certain conditions. Freddy's underwriting rules haven't caught up, so it's a risk if Freddy (or other investor/bank that doesn't allow transfers to an LLC) owns the loan.

How to Transfer Property to your LLC without fearing Due-on-Sale

@Dallas Hall, listen to your instincts. Find a new originator/lender.  File a complaint with whatever agency in your state regulates mortgage originators (presuming this person is licensed or registered, which you can check on the NMLS Consumer site).

@Daniel Volk, chances are it's a one-page doc and a sub-$50 recording fee to do it yourself.  To get an idea of what the verbiage needs to be, you can look for other recently filed deeds in your county involving LLCs.  Alternatively, use an attorney or Title Co for the first one, and use that as your template for any in the future.

As for the timing, I'm not sure it matters much if it's before/after tenants.  After the transfer, you can always update the lease with an addendum or otherwise notify the tenant.  Hypothetically, if you have good tenants ready to go, I wouldn't delay move-in because of the transfer.

@Abby Robinson, if you qualify for the IRS's guidelines as a first time homebuyer, the 10% penalty is waived for up to $10k.  Yes, you would still have to pay income tax on it, but you would likely have deductions from the home purchase to offset some or all of it.

Here's a link to the IRS's Exceptions to Early Distributions

Climbing atop my anti-traditional 401k soapbox: cash out and don't look back.  Only use retirement accounts where you have more control and can use it for direct real-estate ownership, such as SDIRA or Solo 401k.

@Joe Delgrosso, look up the Homeowner's Protection Act (HPA).  Here's some info on the CFPB website. There are a some details in the fine print, such as HPA doesn't apply to FHA or VA loans, and your loan payments need to be in good standing. In general, at 80% LTV, borrowers can request PMI removal. At 78% LTV, lenders should automatically remove it. Note that 'value' refers to the original value, not current value.

Hypothetically, presuming you & the loan meet HPA requirements and if your lender failed to remove PMI, submit a complaint to the CFPB and let them fight for you.

Yes, 20-25% down/equity is typical for investment property, and some lenders may want to see 6 mo's cash reserves per property (not sure if that's close to your $5k number or not). The amount of total leverage across your portfolio will be governed by your risk tolerance and your Debt to Income (DTI) ratio. Only you can decide what's appropriate for your situation. You could certainly make a plan to buy houses at 75% LTV until your DTI is too high for conforming loans, then pause and let your DTI come back down, or find non-conforming lenders with more relaxed DTI rules at the expense of paying higher interest rates.

It's a matter of looking objectively at your budget and deciding how many worse case scenarios you can absorb.