Can you avoid personally guaranteeing mortgages through business?

[Adolphus Fletcher]

Let's say I already formed a new LLC that would be designated for REI. How do I get business credit strong enough to avoid having to personally guarantor commercial or residential mortgages through my business? Is that unavoidable in the beginning? Does it matter if it is an LLC or S-Corp? When I talk to loan officers they say a DSCR loan would be ideal for even a newer LLC because it's more about the numbers on the deal as long as you have the cash for the average 20% and whatever points down. My only reservation is the higher interest rates on these particular loan products vs regular residential mortgages. Let me know if I'm looking at this all wrong or what you'd suggest.

[Patrick Roberts]

It's highly unlikely that you'll get a DSCR loan without a PG at this point. Business credit is largely irrelevant until you get into the true CRE and commercial lending space, and even then, the key principles are weighted heavily. The vast majority of DSCR loans are structured as regular mortgages with the personal income/DTI replaced by the rental income from the property. It's rare to a get a nonrecourse DSCR mortgage without approx 50% down and a ton of credible operating history. The typical formula is 20-25% down + rental income greater than mortgage payment + good personal credit and PG = DSCR. No two products are the same, but most DSCR mortgages roughly follow this pattern.

As for the cost, DSCR loans will almost always be slightly more expensive than Conventional loans. Typically, you can get a comparable rate on a DSCR by paying for it with some combination of points and fees up front. Some lenders will call them points, some will just have points labeled as fees like orig fees, processing fees, UW fees, etc. This doesnt mean DSCRs are inferior products; theyre great for what theyre meant for, which is relatively cheap, permanent financing for real estate without having to jump through the hoops of a Conventional loan.