Will Purchasing a Property under your LLC, increase personal DTI

Question

Hello will purchasing a property under your LLC with no personal liability increase your personal DTI?  We are looking to purchase another home this spring via conventional mortgage, we are selling our primary home and are interested in purchasing a property to flip under our LLC.

Daniel Kong · Answer

@Irene Hunter Like Sasha said, most conventional lenders won't let you purchase a property in your LLC. It would have to be in your personal name, and then moved over after. The Title and mortgage are two separate things as well. So, from my understanding, if you bought it in your name, the mortgage would be tied to you as well. Even if you moved the Title into your LLC, I think the mortgage would still be tied to you, and would show up as debt in your DTI calculation. Is that what you are asking?

Sasha Mohammed · Answer

@Irene Hunter most conventional lenders won't lend to an LLC, only in your personal name. What you chose to do with it after the fact is not up to the lender (ask, though, in-case there is some acceleration clause i'm unaware of). once the loan has closed and the property is owned, you can move title to an entity. there would be additional costs/ fees, but you'll be hard-pressed to find a conforming lender to close in the LLC.

With that said, there are alternative financing options to conventional loans that WILL allow you to buy with the entity. You mentioned you may be looking into a flip -- there are rehab lenders that will allow you to close in an LLC, and in-fact may prefer you do it that way. AND they'll lend you not only the funds to purchase/ acquire the property, but also funds for rehab, too!

Zachary Collins · Answer

@Max T.

Unfortunately this isn't the case.  If you run the DTI equation, debt / income, even extraordinarily cashflowing property will still increase your DTI.

IE 2000 (debt) / 6000 ( income ) = .3333

Max T. · Answer

If you are buying cash flowing rental property it should IMPROVE your DTI, because you are increasing your monthly income more than you are increasing your monthly debt.

LLC vs personal name should not matter here.

Joel Trout · Answer

I had one property in an LLC and one in my personal name when acquiring my personal residence FHA loan. The lender considered all monthly debts and gross income and included them in the DTI ratio for the property in my personal name.  For the property in the LLC, the lender only considered the net income reported on my schedule E as income and did not include any of the debt.

James ONeal · Answer

@Zachary Collins I agree. Even when it cash flows it still counts negatively against your DTI. We are looking to purchase a property in cash, then refi out of it in the name of the LLC. Of course we will have to use a commercial product which means slightly higher interest rate but since it is cashing flowing shouldn’t be as much concern as our DTI when looking to purchase our next primary residence. Do you agree?

Marquay Edmondson · Answer

@Debra A. What products are those?

Debra A. · Answer

Your other option is to use a product that doesn't require you to look at your debt-to-income ratios at all. I know of products that just look at the cash flow of the property but they are designed for investments only- not PR's.

Tom S. · Answer

@Irene Hunter  If you're keeping it as a rental, even if held in an LLC, it will still show on Sch E on your tax returns.  So even if not showing on your credit report, when applying for the next property, the lender will see it there and manually adjust for it.

As noted above, if you're buying a cash flowing rental property, it shouldn't negatively impact your DTI.

Good luck,

- Tom

Irene Hunter · Answer

Thanks everyone! Yes we plan to finance via private lenders under our LLC, but since I have no business credit I read my personal credit will be used as leverage. Seems like I'll need to contact a few private lenders to confirm.  I don't want this investment property to interfere with our buying power for the next family home. The property can be a rental or a flip, right now I'd prefer to flip.  We can always wait until after we buy our home.

Will Purchasing a Property under your LLC, increase personal DTI

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