How to Lend Against an LLC?

Question

Hello,

My partner and I formed an LLC recently. We have been paying all-cash for some small duplexes and single family homes thus far, but are looking to qualify for financing for our next batch of homes.

If anyone is able to provide us with any insight as to how best we can accomplish this, we would greatly appreciate it. We are looking to get Fannie Mae loans, but many lenders have informed us that they will require us to take out the home from the LLC first and put it in our individual names.

Should we instead create our own LLCs?

Any and all help would be greatly appreciated.

Thanks!

Ty Coutts · Answer

Both @Simmy Ahluwalia and @Greg Scott have good points. Scott is correct when telling you that looking at conventional (fannie or freddie) loans as your primary you will not be able to vest in the name of the LLC. You can always quit claim deed this into your LLC later, but the mortgage will always show up under your credit individually.

If you buy it as a "second home" using conventional financing you can vest it in your LLC, but again you are going to be the seen as the personal grantor for that loan regardless.

Simmy has a great point bringing up the DSCR loans which are phenomenal for investment purchases, but the obvious downside is the extra money you have to bring to the table for the higher down payment.

I personally choose to put as least money down as possible always, and care less about them being under an LLC. Beefing up the insurance policy is still going to cost you less then all the extra money you have to put down. There are a ton of different options and creative solutions out there for any financing need, so let me know if you have any questions!

Joseph Coleman · Answer

@John Anderson I would recommend connecting with a great broker (who has access to conventional and non-conventional products) like Ty Coutts (above) or DSCR lender to walk through your scenario. For more DSCR loans they actually prefer or require the properties to be in an LLC. Ultimately you are probably best off comparing DTI based and DSCR based loans to see what works best for you, which is why a broker could be more helpful for you.

Nick Belsky · Answer

@John Anderson

Fannie/Freddie and agency do not lend to entities.  Period.  You can get financing in your name(s) then warranty deed or quit claim deed to your entity.  Fannie requires you wait 6 months before doing so to avoid the acceleration clause.

I have a few investors who like to vest in Inter Vivos Living Trusts with conventional instead of switching over to entities.  You'd need to speak with your CPA or Attorney to see if it would make sense for your scenario, but Trusts also offer several layers of advantages similar to entities.

Cheers!

Eliott Elias · Answer

DSCR lending will close in a LLC.

Eliott Elias · Answer

DSCR lends on LLC's.

Simmy Ahluwalia · Answer

Yes, LLC's are always best to hold title for investment properties.  Forget Agency loans for investment deals.  Use the funds from private banks for both purchase/reno and then DSCR to Refi out.

How to Lend Against an LLC?

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