I am ready to purchase my first investment property for the purpose of a buy and hold rental. Well almost...I am struggling to find a lender that will allow my newly formed LLC to hold a mortgage even with my personal guarantee. I want to title the investment property in the LLC's name. My husband and I both have great credit and have been called "golden borrowers." So, getting the loan in our names is no problem. Any insight on how this has been done in the past would be helpful.
@Jamie Mathieu Ask your lender and attorney if you can quit claim from your name to the LLC right after closing on the property.
Also, look into getting a portfolio loan from a portfolio lender. Those are commercial loans typically and the terms will be different depending on the bank. They will let you get the loan in a LLC though. Local banks and credit unions are the best source I have found for commercial loans.
You should be very aware that if you transfer property into an LLC that you could trigger the "due on sale " clause and have lender accelerate the loan...another issue to be concerned with is the potential transfer fees possibly levied on mortgage balance depending on your location.
I think you should look into purchasing the investment property in a land trust which not only provides anonymity, but also gets around the two issues I mentioned above. The next step is to assign the beneficial interest of the land trust into your LLC which then provides you legal protection.
Try asking lenders if they will fund the transaction in a grantor trust aka land trust and see what they say.
Also. I am not an attorney so I advise you to find one who specializes in real estate, and is familiar with land trusts and hopefully this points you in the right direction.
Maybe this link will help.
@Jamie Mathieu conventional financing requires that the mortgage be in your personal name. I would verify with your attorney, but from my understanding 60 days after closing you can transfer the title into your LLC. This is what I plan on doing once we finish doing a cash out refinance.
Seek out portfolio lenders as mentioned in a post above mine. Since you have no prior landlord experience, they might not give you credit for rent as being income - so it could be tough to qualify if they have a tight DTI because the new loan would be counted as debt :(
FYI the issue probably has little to do with the fact it is a new LLC. It is simply most mortgage providers do not finance LLCs. The reason is many secondary mortgage buyers do not buy LLC loans.
As said above you need to find a "Portfolio" lender. This is a lender who keeps their own loans instead of selling them off. Small local banks are your best bet. Also don't ask for the "mortgage dept or broker, ask for the "commercial loan" dept.
You could literally have someone at the bank tell you "We don't make mortgages to LLCs" When the commercial loan office next to his does them all day long.
Thanks everyone for the advice! This helps a ton!
Also, be prepared to have terms that aren't as attractive as conventional FNMA/FMCC 30 year loans. Typical commercial/portfolio loans will have balloons or ARMS and be amortized around 20 years instead of 30 (though some may do 30 year amortization).
I have done portfolio loans, and have done conventional loans that were transferred to the LLC afterwards. With the conventional transfer method, like mentioned above, you need to consider the due-on-sale clause.
If you transfer the deed to the LLC after closing, be sure to have your insurance provider name the LLC as insured that same day you sign the deed. If the deed/insurance are in different names, they can use that as a reason to deny a claim!
Sounds like a whirlwind of solid information has been provided. Easiest option is to find portfolio lenders who will lend to your LLC and thus constitute as a commercial loan even if it's a SFR and personally guaranteed. They have certain parameters, but I work with lenders who will do this and most of the time, it's underwritten like a commercial loan. Not much looked at you personally. I would start with your local banks and CU's first.
Do note as @Mehran K. mentioned, don't expect as good terms you would receive with FNMA/conventional financing. One of the lenders we deal with will give you up to 30 year fixed, but interest rate is around 6s-7s.
Just my .02
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