An LLC can get a mortgage. In fact, it is easier thank you might think. Many types of lenders are happy to help real estate investors. However, each has its own benefits and drawbacks. You should always do your research to determine which is best for your situation.
- Businesses finance houses and other real estate regularly
- LLC mortgage requirements differ because of both the type of property and lender you use
First, really think about what kind of investor you are. Then examine the property. Finally, choose the right lender to finance your transaction.
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Can a business finance a house?
A business can finance a house, and there are several routes you can take to get a loan. Spark Rental lists the following as good options for finding financing for your venture:
- A conventional mortgage
- Portfolio lenders
- Community banks
- Hard money lenders and private lenders
Each of these has its own rules. Therefore, there are pros and cons working with each. You should examine each carefully to see which fits your needs best.
Will banks loan to an LLC?
Banks will make a loan to an LLC, so your business can get a conventional mortgage. In fact, this option usually affords the most competitive interest rates you can get. However, they also report the loan on your personal credit report. This leads to the following issues:
- Most lenders only allow you to have four mortgages at once.
- Each loan shows more debt making it more difficult to get a subsequent deal.
- That much debt can also lower your credit scores.
If you are a first-time investor or plan to own only one investment property, this may be the best way to go. However, for more seasoned professionals there are better options. Most mortgage companies would rather lend to individuals because its riskier to lend for investment properties rather than primary residences.
Portfolio Lenders can Help your LLC Finance a House
Portfolio lenders help your LLC finance property by keeping the loan in house. They do not sell the debt to other institutions. The advantages and disadvantages of working with a portfolio lender are that they:
- Do not report on your personal credit
- Do not restrict the number of loans you can have
- Often offer better rates the more deals you do with them
- Are more flexible than big banks
- Allow you to borrow part, or all, of the down payment
- Are faster than other institutions (sometimes as fast as two weeks)
- Charge higher interest rates than traditional banks
For experienced investors dealing with multiple properties and complex contracts this is usually the way to go to get financing for your projects.
Community Banks Help LLCs Finance Real Estate
Community banks also lend to LLCs to finance real estate. They:
- Often have lower interest rates than big, national, banks
- Have creative loan programs to help businesses
- Are more flexible than bigger institutions
- Are harder to find
- Have unique, often quirky, rules
- Are limited to a local area
If you work in one, or just a few, local areas this may be the best option for financing. You can develop a good relationship with a community bank, and it affords you the benefits of both a large institution and portfolio lender.
Hard money lenders and private lenders
Hard money lenders and private lenders may also be a good option for your business to finance a house. They are especially good for rehab projects. Their pros and cons include:
- They are particularly good for purchase-rehab loans
- These are private loans from individuals
With a purchase-rehab loan you do not need to refinance after you finish the rehab. This can be a huge advantage. On the other hand, private lenders may have limited resources and charge high interest rates. Crowdfunding options are getting more popular and help mitigate the disadvantages of this option.
LLC Mortgage Loan Requirements
LLC mortgage loan requirements are close to the conditions most banks place on individual borrowers. They require the same personal information as if you apply for the loan yourself. They also require financial documentation from the business.
Can an LLC get a Conventional mortgage?
An LLC can qualify for a 30-year conventional mortgage. In addition to your personal information, the lender requires the following documentation about your business. Roof Stock has a list of items mortgage companies usually require:
- Articles of Organization and an Operating Agreement for your LLC
- Report from Corporation Commission or Secretary of State’s office showing your LLC is in good standing
- Employee Identification Number (EIN)
- Your LLC’s bank account information
- Rental property history and information such as profit and loss statements, tenant lease, and payment history
Depending on the type of property/project, the lender may ask for different or more documentation depending on the particular transaction.
Benefits of Using an LLC Mortgage for an Investment Property
While there are many more loan requirements for an LLC mortgage, there are also important benefits to consider. These include:
- Limited liability and increased protection for your personal assets
- Limits personal liability from financial disaster created by personal injury, partnership disputes, or bankruptcy
- Establishes a business payment and credit history
LLC mortgages are more tedious and require a lot more paperwork, but the benefits are always worth it.
Final Thoughts on Can an LLC Get a Mortgage
An LLC can get a mortgage, and it is usually easier than most investors realize. The more important question you should ask yourself is where you should go to get your real estate investment loans.
Big banks are good for new or small investors because they usually offer lower interest rates. Portfolio lenders are more flexible for investors that own multiple properties. Community banks may offer the advantages of big banks and portfolio lenders without as many disadvantages. Finally, you may want to find a private lender for rehabs or other complex transactions.
As you can see, there are many options. You may even be able to use other types of financing, like FHA loans, under certain conditions. You should think carefully about your situation and then research which option works best for you. Then go out and find the best loan for you case.