Can you turn an existing mortgage into an LLC?

4 Replies

Hi All!

My name is Jeff Byrne and I'm from New Albany, IN. First time poster, haven't even gotten started with our plan. My family wants to start in the RE game by renting our own home after making some upgrades to the house. Our question is can we start our own LLC and put our existing mortgage under that LLC? We're looking to start renting the house a year from now but want to make sure we can take this first step. If not, is there other ways to do this? For reference we are in Southern Indiana just north of Louisville, KY. Thanks!!

You're not going to be able to transfer the mortgage to an LLC. People do transfer their formerly owner-occupied properties to LLCs, while keeping the mortgage in their own name. Depending on who you ask this may trigger a due-on-sale clause and require you to refinance, but I've never heard of anybody being caught by their lender on this.

Welcome to the community, @Jeff Byrne !  As @Taylor L. mentioned above the mortgage won't be change-able, but I bet the heart behind what you are asking is whether the ownership (i.e. the title or deed) to the home can be in the LLC's name. You can do this, which would help give you the protection that an LLC is designed for. Again echoing Taylor . . . that CAN trigger the due on sale clause in your mortgage, but I haven't heard of that happening.

Good luck in the planning and execution of this beginning!

Louisville lender here. As everyone has mentioned, you can transfer your home into an LLC but you can't transfer the mortgage. To get the mortgage out of your name you would have to refinance it into a Commercial loan. Depending on when you financed the home, the rate on a Commercial loan would likely be similar to the rate you have now but there would be closing costs involved. The only time I recommend doing that is if you have hit the limit for mortgages in your name.

There was a change this year about the Due on Sale clause. If you closed your loan after June 1, 2016 the clause can no longer be triggered by transferring the property into an LLC if it is an investment property. There is an article about this on the Bigger Pockets site posted by Scott Smith on 8/15/2019 about this if you want more information.

Congratulations in starting your real estate investment adventure!