How does a commercial loan effect my personal DTI ratio?

Question

I am purchasing a duplex utilizing an LLC and a commercial loan. I am also planning to buy a personal residence within the next 6 months. I have a sizable downpayment for my personal residence, but will need to finance the remainder. Will the timing of my commercial loan prohibit me from securing a loan for my primary residence due to the newly acquired debt? In other words, does a commercial loan under an LLC impact my debt to income ratio, or since it is a cash flowing property, will lenders not count that debt against me?

Greg Downey · Answer

@Jeff White. I get asked this question ALL of the time. The only way that the loan to your LLC will effect your credit will be the hard inquiry when they do the underwriting for the loan. This typically will drop your score like 5 points or so (not an exact science on the credit scoring). It will NOT show up as a trade line on your PERSONAL credit. Whether the loan is or is not recourse should have no bearing on how it is (or is not in this care) reflected as a trad line on your personal report. non-recourse loans are not incredibly common on loans under $1MM in my experience.

Stephanie P. · Answer

@Syed H.

You are incorrect.  Getting a loan from numerous business to business creditors...

• in the name of your LLC
• with you as the personal guarantor

...does not affect your personal DTI.

Stephanie

Syed H. · Answer

Just because it doesn't mean you don't have the duty to report any debts that are personally guaranteed. So technically if you do sign a personal guarantee, it will affect your DTI

Cliff T. · Answer

@Greg Downey thanks for the info here. just curious, won't the lender for the primary residence ask to see a rent roll of his current investment properties? what happens then since the commercial property will be listed as generating rent but doesn't show up on personal credit report?

Greg Downey · Answer

The difference is how it reflects on your credit. Generally a soft inquiry wont effect your credit whereas a hard inquiry will.

Rogers Smith · Answer

@Greg Downey, you mentioned a "hard inquiry" upon underwriting. What is the difference between a hard inquiry and a soft inquiry? I saw "soft inquiry" mentioned in an HML ad.

Andrew Postell · Answer

@Jeff White as mentioned above you should be safe.  I would 100% confirm with the commercial lender just in case.

Jason D. · Answer

@Jeff White I have a commercial loan with a personal guarantee and it does not show on my credit report or my dti

Stephanie P. · Answer

If you are using an LLC for the commercial property, none of the lenders we use or that I know of will report on your personal credit, even if it's personally guaranteed.

Moderator:  Not a solicitation.  Just saying that we use a bunch of different wholesale lenders and none report to personal credit agencies.

Stephanie

Patricia Steiner · Answer

If the commercial loan is in your personal name and/or if you personal guarantee the loan, it will count in your personal DTI.  You'll want to secure a non-recourse commercial loan (i.e., in the LLC name without your guarantee) to avoid having the debt be part of your personal indebtedness.

How does a commercial loan effect my personal DTI ratio?

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