Can an LLC Get a Mortgage: Everything You Need to Know
Yes, an LLC can get a mortgage but there are limitations in place that may make getting a mortgage in your company's name a less than ideal solution.3 min read
2. Obtaining Mortgages for Rental Properties
Updated October 21, 2020:
If you're wondering can an LLC get a mortgage, the answer is yes. However, there are limitations in place that may make getting a mortgage in your company's name a less than ideal solution.
It Is Possible But There Are Limitations
Simply put, you can get a mortgage in your LLC's name. However, you need to evaluate your situation to determine if this is really the best course of action. One business owner, for example, decided to look into getting a mortgage for his LLC only to find the options for doing so are limited. Specifically, obtaining a loan with a low-interest rate is not an option that is available for most limited liability companies.
This business owner could have easily obtained a mortgage using his company's name if he were planning to pay in cash. However, like most other small business owners, he didn't have the means to pay for the property in which he was interested up front. Instead, he chose to purchase the property in his own name. He did so by making use of traditional financing options and putting an insurance policy in place to protect him if things went south. He made the decision to purchase in this way because conventional loans are the least expensive way for business owners to obtain rental property.
Traditional loans are ideal for this because they have:
- The lowest available rates under most circumstances
- Lower required down payments
- Long-term, fixed financing rates
Loans of this nature have these characteristics because the federal government supports them and they can be sold to government-sponsored mortgage companies such as:
- Fannie Mae
- Freddie Mac
Traditional loans are good options. However, they cannot be awarded to an LLC. They can only be obtained by a:
- Living trust
Obtaining Mortgages for Rental Properties
If you're considering making real estate investments, there are a few things you need to take into consideration:
- Understand your limits in terms of available lending options.
- Consider research lenders who are considered investor-friendly.
- Credit requirements become stricter when you have many loans.
- You'll need to make sure you have plenty of working cash.
Fannie Mae only allows you to have up to 10 loans at any given time. Working with a good lender can help you build a strategy to make sure you're taking full advantage of this limit. In most cases, a bank won't give you more than four loans at a time. You may have to conduct research to find lenders who will allow you to carry as many as 10 at a time.
When you're planning to purchase rental properties, it's important to build a good team. An important part of building that team is choosing the right lender. Working with mortgage brokers is fine if you're looking for help to find a house for yourself. If you're working on building up a portfolio comprised of rental properties, however, it's best to work with direct lenders.
Working with brokers means giving up an element of control in the borrowing process. Underwriters have been known to change the standards regarding lending during escrow or choose to pull out of a deal unexpectedly. When you choose to work with direct lenders, however, you have more influence over these decisions. It's important to ask a few quick questions before choosing a lender:
- Are you working with any investors right now?
- How many loans are you able to offer to investors?
- Do you own any of your rental properties personally?
Many people don't know this, but there are actually two different guidelines used to qualify credit for investors seeking a loan:
- If you currently have one to four loans, you'll need a credit rating of 630 or higher
- If you currently have five to 10 loans, you'll need a credit rating of 720 or higher to obtain additional loans
You're going to need to make sure you have enough cash available to make a down payment on a new loan as well as an available cash reserve for up to six months for every property on which you have outstanding loans. This isn't a suggestion and is actually a requirement for most lenders.
If you need help determining can an LLC get a mortgage, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies such as Google, Menlo Ventures, and Airbnb.