Do LLC's only get approved for mortgages 4+ units by banks?

[Adolph Bellamy]

So I was recently notified by my partner that he found out LLC's usually don't usually get approved for mortgages on any properties that are under 4 units by banks. I was just wondering, is there any truth to that? We're currently looking into the Newark, New Jersey market, and so I was also wondering if that is true, are there any banks in the area that would lend to an LLC on smaller residential properties.

-Andrew 

[Patti Robertson]

@Adolph Bellamy & @Account Closed - You guys have the info a little mixed up.  Small and regional banks generally love real estate right now and are lending for holds and flips. Banks have two separate lending divisions personal lending and commercial lending.  The divisions generally know very little about the other and for some strange reason, they never refer you over to the other division.  You just have to navigate who to talk to based on the product you want. Decide if you want a personal or commercial banker and then ask for that person at the bank. Personal bankers are generally inside the local branches.  Commercial bankers can be found on the bank's website. They are usually based at a central office or travel among the branches.

If you want a 30 year, Freddie/Fannie loan, you need to contact either a personal banker or a mortgage lender and the property and loan will go in your personal name. This doesn't have to be through a bank. You probably have some great local mortgage companies in your town. Ask around to see if any of them do up front underwriting. That makes for the least frustrating loan process. Depending on your income, cash on hand, credit, and rental cashflow, etc, HUD allows you to have up to 11 Freddie/Fannie loans, your primary and 10 investment loans (1-4 units). If you are married, you and your spouse can each have up to 11, if you each qualify. The first four are pretty easy. After that it gets harder and harder, because the requirements increase. If you are just starting out, it is often best to try to max these loans out first before moving on to commercial loans, because of the ability to lock your low rates for a long term.

Commercial loans are loans made to businesses. These loans have to be made to a business entity - LLC or Inc. Most likely you will have to also personally guarantee them. Just because they are called commercial doesn't mean you can't use them to buy single family rentals though. You certainly can. The issue you may find is that banks may have a minimum investment amount. Some banks are willing to fund a single house. Other prefer portfolio loans with minimum balances. These loans are generally 5 years, but they could be longer and they are generally amortized over 20 years. My rates for these loans right now are 4.5 - 4.75%. The cashflow of what you are financing will determine what terms the bank will allow you to use. You shouldn't have trouble finding a bank that allows you to finance one property at a time. If you do, you can always buy a few with short term money and then roll them together into a portfolio loan once you have a enough purchased to meet the minimum requirement for your lenders portfolio loan program. The bank I'm using requires we have our properties leased in order for them to finance them, so we have to use short term money to fix them up, lease them up and then we refinance them.

Sorry so long. I hope this clears things up for you!  And offers you some hope!  Banks love real estate right now!  Go build your passive income while the market is still great!