A. Is this rule on hold or is it going into effect?
B. I assume investors would need to title houses in an LLC to get around this, is this correct?
C. Can an investor Quit Claim a deed to an LLC or does he/she also need to change the original note?
D. If so, is it possible to get a cash out refi on an LLC or at least a rate term refi?
E. Would non-conforming loans be another option or business loans?
Please give me your ideas on how to obtain financing after 4 investment properties. Right now I do 80% NOO cash out from my hard money lender to conventional mortgages on investment properties, but they have NOT been in the name of my LLC which I found to be almost impossible to find. Banks were shying away from refi’s especially cash out on LLC properties.
A. Is this rule on hold or is it going into effect?-This rule goes into effect on december 1st, 2008.Many wholesale lenders have already gone to the four property limit.
B. I assume investors would need to title houses in an LLC to get around this, is this correct?-Yes, this is correct. You will need to finance the property in the name of the LLC as well. Lenders will be counting financed properties and using that number.
C. Can an investor Quit Claim a deed to an LLC or does he/she also need to change the original note?-The note will have to be changed as well.
D. If so, is it possible to get a cash out refi on an LLC or at least a rate term refi?-You will have to start showing income from your LLC to qualify for a loan for your LLC. You will also have to start forming relationships with local or state banks. National conventional lenders that sell on the secondary market will be capped at four properties.
E. Would non-conforming loans be another option or business loans?-Non-conforming loans will fall under the same scrutiny. a business loan is the same as a loan to your LLC. Which will work, but you will have to show that your LLC makes money. No bank is going to loan money to an entity that does not show income.
a. max is 4 financed properties, rule is in effect with majority of lenders. Those lenders have till 12/1/08 to sell those loans off to Fannie. The few remaining lenders allowing this will probably ammend their guidelines in the next few days.
b. depends on the lender. Some lenders wont count properties titled in a LLC as long as the loans are in a business name too. This way they dont show up on the personal credit. I have heard some lenders say they wont count properties as long as the properties are title to a business.
c. see above
d. if you have over 4 financed properties then you couldnt this wouldnt work with conforming lenders. You’d need a portfolio lender or local bank commercial loan.
e. yes, see above
Most mortgage professionals, especially those that dont specialize in investment loans, probably wont be affected by the lower “4” limit. Those of us that depend upon this type of financing have already started putting lenders in place. Local banks and portfolio lenders will be the only option. You can look at trying to refi your existing Fannie loans with these or just do your new loans. You may need to just start looking at refinancing just the hml with no cash out.
Some Fannie lenders like Countrywide are still accepting up to 10 financed properties BUT that will end very soon.
One other important note is that the 4 financed property limit INCLUDES your primary residence.
You will have luck with portfolio lenders - small banks and credit unions that do not sell their loans into the secondary market.
Also, I disagree that your LLC has to show income to qualify for an LLC loan. NNot true - the LLC to hold title to an investment property can be brand new. The property must cash flow - and most portfolio lenders will underwrite using commercial guidelines such as debt coverage ratio min of 1.20.
Some retail lenders are still offering options like cas out no seasoning and more than 4 financed properties. The retail side of banks, rather than the wholesale side which brokers use, have specific contracts with Fanie that are being wrapped up. My last last wholesale lenders has given me until 10/12 to finish up my pipeline under theold guidelines. On to local banks and portfolio lenders.
I also agree that the llc doesn’t need to be new and showing income. Commercially structured loans will be based off the cash flow of the property. Each lender will have a different formula to calculate debt service ratio. SOme lenders will even look at the global devt service ratio which is all your income and all your liabilities. Similar to deb ti income ratios but factored differently.
One of my investor buddies had a loan officer flag his time share as another property towards his 4. He was still able to finance the deal he had but they are really getting squirelly.
Update - Countrywide is now at max 4 properties. The only bank that I know of that is still accepting up to 10 is American Sterling but… you know the drill. :rolleyes
As far as I know we are the only one - at least in our market areas really pushing a Fannie Buster - we can do up to four more regardless of how many are on credit. ASB stopped a few weeks ago, Flagstar stopped a long time ago. Most of the names everyone knows are done. By the way four does NOT include your primary residence but many lenders interpret it that way. The 0822 Mortgagee letter plainly states “four properties when they are secured with non-owner occupied properties”. Flagstar allows 4 + 1 (primary).
[b]When a conforming mortgage loan is secured by the borrower’s principal residence, there is no limitation on the number of one-to-four unit financed properties in which the borrower may have an individual or joint ownership interest. If the conforming mortgage will be secured by a second home or investment property, the borrower is currently limited to no more than ten financed properties in accordance with the Selling Guide.
Fannie Mae is updating the guidelines to limit the number of financed properties to four when the mortgage being delivered to Fannie Mae is secured by a second home or investment property. This applies to mortgage loans that are manually underwritten and loan casefiles underwritten through DU.[/b]
The only time you can have more than four financed properties is if you are purchasing a new primary residence.