Fannie makes it harder to cash out rental properties

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By G. Steven Bray

Investors who choose to hold their properties through LLCs need to be aware of a recent change Fannie Mae made to its loan guidelines. The guideline in question was called Continuity of Obligation, and Fannie enacted it in response to the financial crisis to combat fraud. The guideline established a timeframe a party must have owned a home prior to being eligible for refinancing.

For investors, the guideline specifically identified a property held by the investor in an LLC as meeting the requirement as long as that same investor was refinancing the property in his or her own name.

Earlier this year, Fannie rescinded the guideline in whole. The problem for investors is that means Fannie also rescinded the specific carve out for LLCs. Based on recent conversations with Fannie, without the carve out, an investor must first move the property into his or her own name prior to refinancing.

This becomes a big deal if the investor is trying to cash out the equity in the property. Fannie Mae still has a 6-month “seasoning” requirement for cash out loans. Without the LLC carve out, the investor now must move the property into his or her name 6 months prior to being eligible to take cash out of the property using a Fannie loan.

There still is one option available to investors using LLCs, and we’ll look at that tomorrow.