Do banks lend conventional loan for LLC?

Question

Hello awesome BPsI am about to put an offer on a property after a long period of search. Numbers look good and and I might have to put a bit lower than the asking price, otherwise numbers don't work.I have got the pre-approval already and am ready finance wise also. The one thing I am not sure how to navigate, I am trying to get into investing, is the LLC part. Since I am looking for the rental purposes, and for the conventional loan it is going to be on my name?? how does this part work? I am going to form LLC first and ask the bank to lend it that? I had asked about this for the lender a while ago and they had said that might not be possible unless the LLC has been credible enough or something along that line.So my question is, how would I navigate on getting the conventional loan under the LLC that I will be creating or is it something I can do it after I secure everything?Thanks all.

Kal Wol · Answer

Thanks a lot @Jason Wray and @Ethan Gidcumb- This is valuable information. I will reach out for further information as some of the products listed above are new for me.

Ethan Gidcumb · Answer

Hey Kal, from my experience on the Hard Money Side. Loans are closed in an entity but a personal guarantor is recorded. However, the loan is still not reported on your personal credit and you are individually protected through the LLC. I hope this helps!

Jason Wray · Answer

@Kal WolKal - you can get a conventional loan in an LLC as well as DSCR and Portfolio. Each one is a little different but worth running numbers to see a side by side loan estimate/itemization. Freddie Mac does allow to close in an LLC some but keep in mind not all banks/lender will offer this because they have overlays or their investors are limited. DSCR - Easy to close in LLC no rate bump but rates are higher. Portfolio (a.k.a) Banks private capital - great option to use for buying an investment property. Only 15% down even for 2-4 Unit Multifamily rentals & you can close in an LLC with NO prepays. rates are usually better on this program as well with good credit. If the lender allows you can also "Quit Claim" the title after you close into the LLC. Just make sure you are working with the right Bank. Get a couple of quotes before you go with any lender!

Caroline Gerardo · Answer

The GSE's (Fannie Freddie) and all conventional lenders DO NOT allow you to vest in a LLC. When you transfer from your name to LLC it is a SALE deed not a family transfer and they can call the loan if they like. Your hazard insurance is going to be a problem because it won't match as well.Some servicers/lenders will allow you to change a single owner LLC which has 2 years tax returns and you made 12 payments as agreed into the LLC FOR A FEE.NonQM lenders allow LLC vesting and if you are stuck on the entity this is your best avenue and rates are not different. DSCR also allows LLC vesting, for higher rates.Why do you think the LLC helps you? Get great insurance, an umbrella policy, and never have health and safety violations and your investing will be cheaper and easier accounting.

Devin Peterson · Answer

Most traditional lenders who are quasi-gov't backed wont let you close in an LLC. They may also call the note due if the name of the title is changed. It all depends on who you use so you really have to ask the lender directly. This is one of the big advantageous of going DSCR so you can purchase and close in the llc.

Kal Wol · Answer

Thanks a lot @Brittany Minocchi

Brittany Minocchi · Answer

It's not that it's hard to do, but the lender can call your loan due in full by going this route. With a business purpose loan, the lender will evaluate your personal credit as well as you assets and/or the assets of your business depending on loan type. For example, on a DSCR loan, you can close in an LLC but you'll personally guarantee it - so even though it's titled to your LLC, you as an individual are responsible for repayment and approval will be based on YOUR credit. That doesn't guarantee that it will report on your personal credit, it varies lender to lender. Your LLC not having any history won't matter, you'll just need to provide docs like your EIN paperwork, operating agreement, etc.

Kal Wol · Answer

Thanks all for the valuable inputs. @Christopher Grobaker so you are saying I can have my LLC but the bank will be expecting anything related to the loan from me but whatever the protection the LLC provides, I can benefit also? In that case I am not sure how the LLC would beneficiary as it can go beyond the property and reach me? I might have missed something something on this probably. @Brittany Minocchi how easy is it to transfer from personal loan to LLC, do the lender be happy about it? I think that is what you are mentioning as lender the loan due. And when it is in business loan to LLC, do the bank see my personal asset/credit score and the like to lend I believe as the LLC might not have any history on it yet?

Malorie Moore · Answer

Good Morning! From my experience, banks will not loan to LLCs on a conventional loan. This is due to Fannie Mae and Freddie Mac guidelines. However, I do know some lenders that have other products that will lend to an LLC but it will normally result in a higher interest rate. What I tell the investors I work with is close in your name to get the lowest rate and then quit claim it after closing into your LLC. I have never heard of any issues with them doing so.I hope this helps!

Brittany Minocchi · Answer

Yes, the loan would be reporting to your personal credit on a conventionally financed property. There are folks who do this and then transfer title to an LLC, but you then run the risk of the lender calling your loan due. To avoid that, you can use a business purpose loan that will allow you to close in the name of an LLC so no transfer is needed. Even if you close in an LLC, some lenders still still report to your personal credit, but not all do.