It is hard for an LLC to buy a house with a Federal Housing Administration (FHA) mortgage. In fact, there is only a very narrow category of real estate that your business may purchase with one of these loans.
- A business can get an FHA loan, but only if it meets strict criteria
- You cannot get an FHA loan for an investment property
- An LLC can have no more than four conventional mortgages
The government’s requirements are strict, and they are meant to ensure that only first time or cash strapped home buyers have access to these resources. However, there are cases where investors can use these instruments. In fact, in a few cases it even makes good business sense.
Click to Open Outline
Can an LLC Get an FHA Mortgage and Use it to Buy a House?
An LLC can get an FHA mortgage and use it to buy a house, but there are many restrictions. This is because the government started this program to help people who do not have much cash buy a place to live. The advantage of these loans is they are federally backed and allow you to make a smaller down payment. It is no intended to help business owners, but in some cases, LLCs can use them. According to SMB CEO to be eligible you must:
- Be a sole proprietorship, partnership, LLC, or S corporation
- Own at least b25% of the business
- Have two years of documented experience as a business owner or prove experience in other ways, such as employment in the same industry
- Provide two years of tax returns and a credit report and/or profit-loss statement
These loans cannot be used for second or vacation homes either. With all these rules it makes sense for only a few specialized situations. One example might be a doctor who buys a home to operate his/her practice on the ground floor of a two-story house and live upstairs. They may be cash poor (especially if he/she is just starting). Since they live in the house, they meet the residency requirements, so they may benefit from an FHA loan in this case.
You also cannot use them for rental or other types of investment properties. There are exceptions, though. To understand the exceptions let us look at a couple of the rules:
- The new owner must move in within 60 days (about 2 months) and live there for most of one year.
- The owner can refinance with an FHA streamline without meeting the occupancy requirement.
Can You Get an FHA Loan on an Investment Property?
In most cases you cannot use an FHA loan on an investment property. Investodia points out that there are exceptions, though. To understand the exceptions let us look at a couple of the rules:
- The new owner must move in within 60 days (about 2 months) and live there for most of one year.
- The owner can refinance with an FHA streamline without meeting the occupancy requirement.
There are other rules too, but these two allow investors to use FHA loans in some limited ways. For example, the government allows you to buy a multi-unit building and use an FHA loan if you live in one of the units. Also, the building can be no larger than four units.
Another example is you can purchase a home using an FHA loan, move out of it after a year, use it as a rental property, and then refinance it with another FHA loan. If you qualify you do not have to meet the occupancy requirement to refinance.
How Many Mortgages Can an LLC Have?
Most banks only allow an individual to have four conventional loans. FHA loans go through the same process, so you will not be able to get more. Community banks may not report your loan to the credit agencies, so they may underwrite more. However, your best opportunity for getting accepted for multiple loans will be with portfolio lenders.
Final Thoughts on Can an LLC Buy a House with an FHA Mortgage
An LLC can buy a house with an FHA mortgage, but only under certain conditions. Since the government never intended these loans for businesses they are not ideally suited for most situations.
If you live in and run your business out of the same building, then it may be reasonable to use this type of loan. Also, if you buy a multi-unit investment property and live in one of the apartments it may make sense for you. However, in most cases investors are better off seeking other sources of financing for their projects.
