Residential Loan - Has to be owned by Personal Name?

Question

Thank you ahead of time for your help!

I studied carefully and created an LLC before buying our first rentals. We were able to buy out a retiring landlord and bought two 5-plexes and one 4-plex. He owner financed them for 3 years. We are about a year and a half in. Property values have jumped in the past year which puts me in a great place for equity. I went ahead and set up a meeting with my bank to look at rolling out the 4-plex. My banker was very excited (of course) to do the residential loan, but told me I had to remove it from my LLC and move it into my personal name.

Is it true that we can't have a residential loan in the name of an LLC?

Bob Green · Answer

@Wayne Brooks is exactly right. Fannie Mae and Freddie Mac guidelines do not allow you to close in a LLC or any corporate entity.  There are plenty of unconventional lending partner that can and will assist you.

Wayne Brooks · Answer

It's quite simple....you can Not get conventional financing (Fannie Mae and Freddie Mac) financing in the name of an LLC, it would have to be in your personal name.  And these are likely the only loans your banker offers, and are probably 80% of the loans available to you, if you're not an LLC.  For an LLC you'd have to get a Commercial loan, higher rates, 20-30 year amortizations, but ballooning in 5 years or so.  Just another reason Not to put properties in an LLC.

JD Martin · Answer

What's going to happen is that they're not going to give you the loan otherwise. You can get the loan, then transfer ownership and they probably wouldn't take up the "due clause". But you are going to be the personal guarantor either way, unless the LLC has attachable assets. If you are not planning to use the other property as collateral, the bank knows that without the personal guarantee, the LLC can go under and they're left with the property. They don't want to own the property - they want their money and interest.

This is one reason I think the idea of creating LLC's for most small businesses is overstated. Most of the small business owners I know can get by just fine with a good umbrella policy.

Nate Baumann · Answer

That was what I thought too, but the banker told me otherwise. Very specifically he told me that it would have to be changed into my name. He said that it could trigger the due on sale clause, but he has never seen it happen. That is why I am floating this question out to other 4-plex owners or bankers to see what they would say! Thanks

David D'Errico · Answer

I far as I know The loan can be in the name of an LLC but it has to be backed by a personal guarantee. so your name will still be attached to the loan application and the deed but it doesn't mean that you can't have it in an LLC.