Investor · Rochester, NY · Member since 2013 · 103 posts · 55 votes
If I get a mortgage on a property in my personal name, and then transfer that property into my LLC's name, what exactly happens to the mortgage? Does the mortgage also go into the LLC's name to be paid from the LLC? Or is the actual deed the only thing that the LLC would receive?
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
12y
You can transfer the deed to your LLC, but the mortgage will remain in your name. There are a lot of topics that cover this situation on BP, so you can search around for more info on the logistics. The biggest thing to be aware of is that the bank can call the note due if you do this. They usually do not do so and it's not a big concern in the short term. When interest rates go up they may be more active about forcing folks to refinance/repay the notes though.
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
12y
You can transfer the deed to your LLC, but the mortgage will remain in your name. There are a lot of topics that cover this situation on BP, so you can search around for more info on the logistics. The biggest thing to be aware of is that the bank can call the note due if you do this. They usually do not do so and it's not a big concern in the short term. When interest rates go up they may be more active about forcing folks to refinance/repay the notes though.
Real Estate Investor · Kyle, TX · Member since 2014 · 33 posts · 4 votes
12y
@michaelsiekerka That's good info to know. I'm just learning rei investing and soaking up everything I can. So, would the solution to avoiding the mortgage being in my name be to do the mortgage under the llc or dba to start out our is a bank completely going to throw that option out as non viable?
Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
12y
@Timothy Edwards - there are many ways to hold and finance real estate and it's impossible to speculate which would be best for you without knowing all of your finances and what your goals are.
If you want to purchase a property in an LLC, you will not be able to do so with a residential 30 year mortgage (at least not one backed by Fannie or Freddie). One great alternative is to buy with an LLC and get commercial financing through a local bank. The downside is you're usually looking at a 5 year term with a 20 year amortization instead of a 30 year term/amortization. One major upside is that commercial lenders know these types of loans and are much more accommodating than a typical residential "mortgage specialist". I've also found better LTV going the commercial route than with residential loans. The ability to use commercial loans will depend on the type of property and dollar amount of the loan(s).
The main takeaway is:
LLC = commercial loan
Personal name = residential loan
Commercial lenders don't usually like you owning in your personal name and residential lenders typically won't allow you to own in an LLC.
Michael Siekerka Would one be able to get a commercial loan through an LLC for 2 family residential properties?
It depends on the bank and their lending requirements. The smallest I've done is 3 units. Typically the first criteria is dollar amount of the loan. A lot of banks have $50K or $100K as a cutoff, meaning you have to be asking to borrow at least that much money and your property has to be at least worth that much divided by their maximum LTV. So if their minimum loan is 100K and they require 75% LTV, your property will need to be worth at least 100K/0.75 = 133.33K.
In addition to that some lenders don't do smaller properties regardless of loan amount. I had several lenders pass on the 3 unit property I was financing because they only do 5+ units.
The good news is that unlike residential loans, each bank has their own set of standards they use to determine if they will lend. If one bank turns you down for a residential (Fannie/Freddie) loan, then all of them will (assuming nobody inputs different information) because they all use the same software.