Getting Home Loans For Your LLC: Everything You Need To Know

When you own rental property, it’s usually a good idea to hold it in the name of an LLC, to help limit your liability and build credit for your real estate business. However, it can be tricky to obtain an LLC mortgage, especially if you’re doing it for the very first time.

Here’s how mortgages for an LLC work, the pros and cons of having a property loan under your LLC, and where to look for an LLC mortgage.

Buying a home through your LLC can be advantageous, but getting approved for a mortgage as an LLC can be tricky As an LLC owner exploring home financing options, there are some key things you need to understand. In this comprehensive guide, we’ll walk through LLC home loans from start to finish, covering topics like

What is an LLC?
Why buy a home through an LLC?
Where to get mortgages for LLCs
LLC loan requirements
The pros and cons of LLC home loans
Tips for getting approved

What Is An LLC?

An LLC, or limited liability company, is a business structure that protects the personal assets of its owners. LLCs are legal entities separate from their members, offering liability protection and certain tax benefits.

LLCs can have single or multiple members The owners are referred to as “members,” while sole owners are called “single-member LLCs.” LLCs have more flexibility in ownership and management structure compared to corporations

When an LLC purchases real estate, the property is owned by the LLC, not the individual members This separation shields the members’ personal assets if the LLC runs into debt or legal issues related to the property.

Why Buy A Home Through An LLC?

There are a few key reasons real estate investors and other homeowners may want to purchase property using an LLC:

Liability protection – As mentioned, LLCs limit the owner’s personal liability. If legal issues arise related to the home, only assets owned by the LLC itself are at risk rather than the member’s personal assets.
Privacy – Buying a home through an LLC provides privacy since property records list the LLC as owner, not your personal name. This appeals to celebrities, public figures, and those desiring anonymity when purchasing high-value real estate.
Tax benefits – LLCs allow pass-through taxation, meaning income passes through to the owners avoiding double taxation on the corporate and individual level. Real estate taxes are paid by the LLC.
Asset protection – For real estate investors, owning each rental property in its own LLC insulates the other LLC assets if one property runs into problems.

Where To Get A Mortgage Loan For An LLC

Traditional lenders like banks rarely provide mortgages to LLCs, but some specialized lenders offer programs catering to LLC borrowers. Here are a few options:

Portfolio lenders – Many non-bank portfolio lenders will lend to LLCs since they don’t sell loans on the secondary market. They have more flexibility than banks or lenders selling to Fannie Mae/Freddie Mac.
Hard money lenders – These lenders provide short-term real estate loans in exchange for a lien on the property. Hard money loans typically have higher rates/fees but faster approvals and easier qualifying.
Private lenders – Individual investors or companies providing private real estate loans. They may accept an LLC where traditional lenders won’t, often with quicker turnaround but higher rates.
Commercial lenders – Some commercial lenders like small business banks have LLC loan programs. But their stringent eligibility and high down payments make them unrealistic for most.
Alternative online lenders – Newer fintech lending platforms are more likely to accommodate LLC borrowers. They have specialized products not offered by legacy institutions.

LLC Loan Requirements

While specific requirements vary between lenders, here are some typical policies for LLC mortgages:

Higher down payments – Usually 20-25% minimum, sometimes up to 50% down.
Proof of ability to repay – LLC will need 2 years of tax returns showing strong revenue and profits.
Personal credit checks – Members’ personal credit scores still important, despite LLC ownership.
Personal guarantees – Members may need to personally guarantee the loan.
Higher interest rates – LLC loans average 0.5 to 1% higher than individual mortgages.
Investment properties only – Most LLC loans are for investment, not primary residences.
Limited loan-to-value ratios – Lower maximum LTVs, like 70% instead of standard 80-90%.

The Pros Of LLC Mortgages

Getting a home loan through your LLC has some nice perks:

Liability protection remains intact
Preserves privacy of property ownership
Only LLC assets at risk in event of default
Continue benefiting from LLC tax structure
Deduct interest, taxes, expenses on investment property
Avoid personal name showing up on mortgages
Build business credit history for LLC

The Cons Of LLC Mortgages

However, there are also disadvantages to weigh:

Higher down payment requirements
Typically higher interest rates
Difficult to qualify without personal credit checks
Need commercial property insurance policies
Qualifying is based on LLC’s finances, not personal
Members may still need to provide personal guarantees
Loans not available for primary residences

Tips For Getting Approved For An LLC Mortgage

Here are some tips to boost your LLC’s chances of mortgage approval:

Shop lenders accepting LLCs – Don’t waste time with banks saying no immediately.
Make large down payment – At least 20-25% down, preferably 30-50% if possible.
Have strong personal credit – LLC underwriters still examine members’ scores closely.
Show consistent LLC income – Provide multiple years of solid revenue/profits.
Put member’s name on title insurance – Insures lender in case they have to foreclose.
Keep LLC ownership simple – Avoid complex co-mingling of personal and LLC assets.
Explain purpose clearly – Clearly state if it’s for a rental property or owner-occupied home.

Final Thoughts

As you can see, getting approved for a mortgage under an LLC takes extra effort but can be done if managed carefully. Thoroughly vet different lender programs, maximize your down payment, optimize your LLC’s financial records, and boost your personal credit score.

While LLC financing may not be realistic for your average homeowner, for real estate investors and those prioritizing liability protection and privacy, it can be an excellent option. Do your homework and consult professionals to determine if buying your next home through your business entity makes sense.

Savings & Loans and Community Banks

Local banks and savings and loans in the market your rental property is located in are also excellent options for getting a mortgage with your LLC.

Because smaller lenders like these are more community-focused, they may be more willing to work with you since you’re providing needed rental housing in the market.

Portfolio lenders are more creative in structuring an LLC mortgage with terms and conditions that meet your investment goals. They tend to fund faster than conventional lenders and smaller banks, but fees and interest rates may be higher.

Lenders like these can be a good first option to obtain an LLC loan, since you can always refinance for better terms at a later date.

Private lenders are a good match for rental property investors looking for short-term financing, such as a property that needs a lot of renovations before it can be rented to a tenant.

Down payments, fees, and interest rates are usually higher, and the private lender may want to cross collateralize the loan with your other assets. On the plus side, private lenders can be very innovative with devising a mortgage that fits the needs of your LLC.

Application Documents for an LLC Mortgage

If you haven’t done so already, you’ll need to form and register your LLC with your state’s Corporation Commission or Secretary of State’s office. You should also have an operating agreement for your LLC, especially if you will have investment partners.

You’ll also need an employer identification number (EIN) for your LLC which you can get from the IRS online. Lastly, you’ll want a business checking account for your LLC, along with a debit and credit card.

The lender will want this information, along with some basic information about yourself, such as personal income, assets and debts; a mortgage loan application, and a list of your other rental properties (if you have others).

Using financial rental property management software from Stessa makes it much easier to provide a lender with the information they need. You can generate income statements, net cash flow reporters, and capital expense ledgers at both a property and portfolio level, and also export tax-ready financials.

A conventional mortgage for an LLC can offer the best terms, interest rates, and down payments. But the lender will likely want your personal guarantee, along with a credit report and personal financial information.

While there are some drawbacks to guaranteeing the loan, it’s a good way to begin building credit for your LLC, especially if it is brand new.

LLC Mortgage Loan Requirements To Purchase Real Estate

FAQ

Is it harder to get a mortgage with an LLC?

Difficulty Getting A Mortgage Banks know that LLC members and shareholders can’t become personally liable for the LLC or corporation’s debts. In this case, many lenders will only extend a mortgage loan to a small LLC or corporation if the business owner volunteers their own personal assets to back the debt.

Is it hard for an LLC to get a loan?

If you have good credit and can meet the lender’s eligibility guidelines, getting a business loan with an LLC can often be easy. But new businesses and businesses with limited revenue may have difficulty getting approved, especially with traditional banks and credit unions.

Can I use my LLC to pay my mortgage?

Your lender may require you to pay off the mortgage if you want to transfer it to an LLC. Under these conditions, you can refinance your mortgage with the LLC. The capital from your mortgage loan in your LLC then gets used to pay off your existing loan.

Can an LLC be a borrower on a mortgage?

Getting a mortgage to fund an LLC purchase can be tricky. They typically are not eligible for a traditional residential mortgage — loaning to an LLC is riskier for a lender than loaning to an individual, as it can be more difficult for them to recoup losses on a defaulted mortgage if necessary.

Can an LLC get a mortgage?

You may not be able to get a mortgage: Many mortgage lenders don’t lend to LLCs due to the risks involved. If the LLC defaults on the mortgage, the lender could lose out. On top of that, Fannie Mae and Freddie Mac loans, as well as government-sponsored loans, like FHA loans, aren’t available to LLCs.

Who is the best mortgage lender for an LLC?

Recommended LLC Mortgage Lender: Rocket Mortgage It can be difficult to know what to expect and prepare for when trying to find the right mortgage lender for your LLC. For certain types of businesses, this process will be easier than others.

Can a small LLC get a mortgage loan?

Banks know that LLC members and shareholders can’t become personally liable for the LLC or corporation’s debts. In this case, many lenders will only extend a mortgage loan to a small LLC or corporation if the business owner volunteers their own personal assets to back the debt. Again, Rocket Mortgage doesn’t loan to LLCs.

Can a business owner get a mortgage under an LLC name?

1. Conventional Mortgage Loans for LLCs Yes, business owners can get a conventional mortgage loan under an LLC name, and often for affordable interest rates. But it comes with some caveats. First of all, conventional lenders don’t love writing mortgages for LLC rental properties, aren’t designed for it, and often make it difficult for you.