Financing using an LLC

[Zachary Corum]

I am actively looking in my market (North East Pennsylvania) for my first buy and hold property. To be prepared I formed an LLC to hold the property once I find it. I am primarily looking at duplex, triplex and quads. I would like to work with local lenders first to get a good rapport with them for future investments.

Question 1: What criteria are lenders looking for when I come to sit down with them to ask for financing?

Question 2: What documents, or information should I have prepared when I come to the lender?

Question 3: What are the differences in financing for an LLC as opposed to personal?

Thanks for all your help BP!

[Justin K.]

I am in western PA. First off, GREAT QUESTION! Ultimately my answer is going to be, go talk to a few banks. My wife and I are currently house hacking a duplex (owned in my personal name and financed with a 30 year fixed at 3.5% through a local bank) and we are also renovating a 5 unit (3 units rented and 2 under construction - owned free and clear with an LLC, but will be financed once fully rented).

Typical financing I have found recently.

Local Bank Financing: 

Best rates are for your 'personal residence' if you can buy a duplex, tri, or quad the bank will finance it with todays SUPER LOW interest rates for a longer term 30 years. I chose to lock in the low rate for my duplex because of the cashflow I can achieve with that financing. I would prefer not to have my name on the property, but to my tenant my LLC is the face of the property.

I can also get a 'portfolio loan' from my local bank. This is an option for an LLC, but in my area and with my local banks I must personally guarantee the loan. The nice part about the portfolio loans that I have seen with my 2 local banks is term flexibility. Typical terms that I am seeing are 15 yr fixed, 20 year fixed, or 15/1 adjustable rate mortgage that is 15 years of fixed interest and then adjustable rate for the remainder of the term (term length can vary up to 30 or 40 years).

Another bank that I have been working with will ONLY do a 15 year mortgage on any property owned by an LLC. Last time I met with my mortgage broker she informed me that interest rates for this type of loan were 5.75% with interest rate resets every 5 years and with a max LTV of 75%. I haven't pressed her on it, but I think that the 5 year reset to the interest rates may be negotiable.

Obviously the interest rates for things owned in an LLC are higher. Make sure that goes into your calculations. Which leads me to my previous answer of just go talk to a few banks. If you meet the mortgage broker he/she may not be able to answer all your questions in regard to the LLC stuff, but that person should know who to point you to.

As far as question #2, I have had the same bank ask for different things.  I honestly think that it depends on who is underwriting the loan and what they want.  

Hope this helps!  And best of luck!