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How a Rental Property’s Title Affects Financing

Your attorney and accountant may disagree with this section, but if you ever need to refinance or get an equity line on an investment property (better known in the mortgage industry as “non-owner occupied property”), the only way to get a favorable program and rate is to have it titled under your own name.

If it’s titled in the name of an LLC, partnership, corporation or whatever else your attorney can muster up, almost every lender will restrict your loan-to-value ratio considerably and your interest rate will be hiked. The “loan-to-value ratio” is the amount of money you can borrow against the property’s value. If the property is valued at $100,000, lenders will allow you to finance only up to $70,000~$80,000, while many other lenders may allow you to go higher, so long as the property is in your name.

Well, what about using a “quit-claim deed” to transfer title from my business into my name right before I need financing?

A “quit-claim deed” is a simple, no-frills, one- or two-page legal document that transfers one’s interest in a property without any expressed warranty or guarantee to another person. The problem is that it has to be formally recorded in the public record and your county will most likely require you to pay recording and document stamp fees – which could cost you thousands. However, the biggest difficulty with this tactic is that lenders require the title of the property to have been in your name for at least six months – some even twelve months.

Okay, but I thought lenders only allowed you to own so many properties?

This is true of conforming or prime lenders, such as the major banks, where the cap is usually five – but if things are really going well for you, there are non-prime lenders that will allow an unlimited number of properties as long as you have enough income.

If you, your attorney and your accountant are that adamant about titling the property under some type of entity, you may want to try approaching a local credit union or small town bank that you have built a relationship with over several years – and have the deposits to back up this banking relationship. That way, you may be able to get a personal exception.

In case you are in disbelief: Contact any major bank or lender and ask them about their requirements for financing and refinancing non-owner occupied property. You should always shop around as far in advance as possible to learn of any new requirements or restrictions.