Will conventional lenders lend to a LLC?

[Sean S.]

Hello friends,

I fully understand the reasoning one might want to operate through an LLC when flipping homes. Of course I want to protect my personal assets. Does anyone know whether banks and credit unions are willing to give conventional loans to LLCs? Or will they require you to make the property purchase as an individual. Any input on this topic would be greatly appreciated.

[Scott Smith]

In the past it was safest to purchase a property in your personal name for the conventional loan and then to utilize a land trust to protect the assets under an LLC. Property > Land Trust > LLC. The reason is that the Fannie/Freddie lenders could use the Due on Sale Clause to recall a note for a direct transfer into an LLC. The laws are changing regarding this for purchases and LLC created over the last couple years, so the middle step of the Land Trust is not longer required to avoid the Due on Sale Clause - as long as they dont change the laws again.

Land trusts were used for a long time in this capacity and have not been altered, so I personally still utilize them to avoid all the changes that keep happening with those loans. On top of that you can introduce anonymity with the Land Trust and remove your name from public record entirely for the property, which is a useful trick. It also rolls into your future estate planning, so there are some benefits beyond that.

Just depends which method you want to go. Probably overkill on the explanation, but since the strategy involved changes every few years it can be nice  to understand why they operate the way they do now. Can be useful to get an attorney involved to walk you through the process, if you have not done it yourself in the past. It can be straightforward, but if you don't form or operate the entity properly you actually aren't protecting yourself and just end up introducing more work.