Pay Loan from Personal or Business account?

Question

Hello!

I'm already a few years into a single family home house hack where I rent out some rooms. As I listen to pod casts and do more research I realized I need a separate account to keep things happy with Uncle Sam. It got me thinking, I don't make enough income from renting out the rooms to cover the cost of the mortgage so my question is, which account should I pay the mortgage from? Is it better for me to funnel money into the business account and pay the mortgage from there? Or move the rent money to my account and pay the mortgage from my personal account?

Much thanks!

Kento

David M. · Answer

@Kent M.

Do you have a formal company, such as a LLC?  If you don't, it really doesn't matter.  There is no corporate veil to consider, so no co-mingling issues.  Either way, you debt will be considered somehow when you refi.  There isn't enough issue from your post on how it will be considered.

Not sure what you are learning or what is your situation, but you do not have to have a separate account if you aren't using a legal entity such as a LLC.  Having a separate checking account just helps you and/or your accountant/bookkeeper keep track of everything.  Depending on how one does their bookkeeping, trying to go through a years worth of receipts and transactions could be very difficult.  For example, which Home Depot charge was for your 'personal home' vs. for 'the house hack?'

Lastly, if you wish to be more formal especiallyif you have formed a legal entity, the mortgage payments should be drafted on the account of the person/entity which gave the mortgage.  So, if the mortgage is under your name, technically you'd want the payment to come from your account.  If the mortgage is under the LLC for example, than it would have to come from its account.

Hope that helps.  Good luck.

Jason Wray · Answer

Always pay the mortgage through the business checking account.  Majority of banks and lenders exclude the mortgage payment form the personal DTI when refinancing or buying another home.  They require 12 months cancelled checks or 12 months bank statements.  Try not to pay using money orders or other hard to prove receipt methods.

David M. · Answer

@Kent M.

Oh, if you don't have a legal entity, then its really just a matter of your bookeepping/accounting in my mind.  Its more so whatever works for you to keep track of your expenditures.

Its come up a many times before on BP..  You don't have to have a bank account "for every category."  Its your bookkeeping that matters to document your transactions.  For example, some people think they need to have an account for capex, another for repairs, another for blah blah blah...  You can do it all in your personal bank account, but just have the record keeping to know what amount is setaside for what and what were each of your expenditures.  It can be much simplier to manage you finances, in my opinion, via bookkeeping vs. opening more bank accounts.

Good luck.

Kent M. · Answer

Thanks @David M.

Makes sense! i'm not at the point where i feel like it's worth it to have an LLC yet but if i do then i'll be sure to make that change.

Thanks!

Kent M. · Answer

@Jason Wray thanks!

A side question, I just got a new job. Is there an amount of time I have to wait before I can get approved for a loan?

I'm eager to make a new investment with my higher income!

Pay Loan from Personal or Business account?

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