FNMA Regulations Won't Accept LLC Properties

8 Replies

Hi all,

I am in the process of seeking out financing for my first out of state buy and hold deal. The properties I am targeting are in the 25k - 60k range located in Milwaukee. One of the lenders I contacted stated that FNMA Regulations won't accept any property who title is listed under an LLC. Given that this must be a strict rule, is there any way for me to set up an LLC for a property after obtaining financing?

I have heard that a Property Management LLC can be set up to shield yourself, but I am going to be hiring a property manager and don't know if that would help me. In addition to this, it appears that obtaining an umbrella insurance policy will give me another layer of protection. 

If there is no way for me to set up an LLC for a financed property, and I have the resources to buy a property with cash (vs. 2 or 3 financed ones), would it be preferable to opt for the cash route in order to set up an LLC even though I would be losing some short term leverage? 

Portfolio lenders will finance properties owned by LLCs.  This will be more like commercial type financing with short terms than conventional.  And you may have to make dozens of calls to find one.  But they do exist.  Try smaller banks and credit unions.

If you want conventional (30 year fixed rate) you'll have to put them in your name. You can transfer them to an LLC after getting the loan, but that violates the due on sale clause. If the lender does call them loan, you should (no guarantees) be able to put them back into your name and avoid the call.

Alternate option: use a portfolio lender and get commercial loans in your LLC. You'll still need to provide a personal guarantee probably. It may be necessary to get loans in that range anyway, as many traditional banks don't want to make such small loans in the first place. The terms will not be quite as good - slightly higher interest, balloons, ARMs, no 30 year fixed, etc.

Concur with Jon and Robert. I do commercial loans at Fife Commercial Bank (Wa.) It would be common for us to do a commercial loan to rentals owned by an LLC, with a personal guaranty. You should be able to find this in Wisconsin and get the leverage you seek.

I'm closing next week on a commercial loan from a local bank in which I have the house deeded in my LLC's name. They didn't have any problem with it.

@Account Closed  - Commercial loans permit LLCs from what I understand, but conventional mortgage loans do not permit them.

The bankers I have taught to here in Dallas told me everyone would throw an LLC together and try to get a conventional mortgage thinking they can bypass the personal guarantee, and the bankers are watching the LLC fraud very close.

Joe Gore

@Daniel Smilansky why are you wanting to invest out of state? ROI? You should take a look at some other areas in CA.... like the central valley. I would be more than happy to show you the type of properties I invest in or give you some ideas.


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