Can an LLC get a traditional 30 year mortgage like an individual?

Question

To potential partners approached me about joining them and establishing an LLC to Byam whole rental properties. My question about buying and holding properties in LLC is can we get a traditional 30 year mortgage in an LLC you like an individual can?￼

Matthew McNeil · Answer

@Nathan Shankles

Yes, I've done it several times. However, a few things to consider first. The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC).

If you take out a mortgage personally and transfer the property to your LLC that you control, you should be exempt.  Also, if your loan was conventional; Fannie Mae recognizes the legitimacy of a QC between the mortgage holders and the LLC so long as the LLC is controlled by the borrowers;

If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B2-2-01, General Borrower Eligibility Requirements for additional details.)

I believe Freddie Mac follows suit.  Here’s a BP post on the same topic; https://www.biggerpockets.com/forums/49/topics/610831-oh-yeah-the-due-on-sale-clause-is-now-llc-friendly-sometimes

Regardless, you should always talk to your lender and tell them exactly what you’re planning and get their approval.

Next is to check with the Title Company regarding the Title insurance.  Generally, the coverage of the policy will state; “The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title.”  Again, as with the question regarding the lender mentioned above, its best to ask your Title company if the insurance coverage remains intact if the asset is transferred.

I am not a lawyer and this is not professional advice.

Alpesh Parmar · Answer

@Nathan Shankles you can buy and hen transfer the deed to LLC. Every lender will have due on sale clause but it’s not a sale and if you pay mortgage on time, they won’t go after you. Lenders have too many delinquent borrowers to go after. I have done this multiple times and this was the advice I have received from my CPA, attorney and PM.

John Morgan · Answer

@Nathan Shankles

I’ve switched loans under my name to my LLC several times. One of my banks recently found out I did this on three of my loans with them when I was in underwriting with a fourth loan with them. Oops. They said just make sure I’m not late on the mortgage payments because they could call the note. But said they clearly see why I put them into an LLC to protect myself. My investment property mortgage rates are between 3.25%-3.875% under my name. A commercial loan under my LLC would be around 5% or higher if I went that route. No thanks.

John Woodrich · Answer

@Nathan Shankles most all personal loans have the due on sale/transfer clause.  Some people void them anyhow.  I personally don't but many of my clients chose to do so but it is a business decision for them.

Matthew McNeil · Answer

If you take out a mortgage personally and transfer the property to your LLC that you control, you should be exempt.  Also, if your loan was conventional; Fannie Mae recognizes the legitimacy of a QC between the mortgage holders and the LLC so long as the LLC is controlled by the borrowers; If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B2-2-01, General Borrower Eligibility Requirements for additional details.)

Joe Splitrock · Answer

@Nathan Shankles I don't think you can purchase a property with a conventional fixed rate 30 year mortgage in a mult-member LLC. @Tim Johnson to my knowledge there is no 30 year fixed rate loan option. Are you talking 30 year amortization or 30 year fixed rate? Can you provide more details on this?

Nathan, it does appear that Fannie Mae underwriting guidelines will allow you to transfer a loan written in your personal name to an LLC. You need to be the majority owner in the LLC, so if you are taking on partners, you would need to write the personal loan, then transfer into the LLC and hold majority ownership. When you go to sell, the ownership needs to transfer from the LLC back to your personal name.

This doesn't work well with partners, because the loan is 100% your risk. Then when you sell, the other member LLC owners have to give up ownership, so you can transfer it back. So it seems this would work for single member or married joint ownership, but not ideal for a partner situation.

Here is the text from Fannie Mae Servicing guidelines that lays out the rules (link to full text at the bottom):

a limited liability company (LLC), provided that

• the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, andthe LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

Note: The servicer must notify the borrower that a property transferred to an LLC must be transferred back to a natural person prior to any subsequent refinance application in order to meet Fannie Mae’s Selling Guideunderwriting requirements.

https://www.fanniemae.com/content/guide/servicing/d1/4.1/02.html

Tim Johnson · Answer

@Joe Splitrock

We offer a 30 year fixed rate loan Investment property only.  The property can't be owner occupied.  The rates are higher than fannie mae rates but they are still good for what the product is 6.25% 30 year fixed and 75% LTV cash out. We also do purchase loans 80% LTV 1-4 no adjustments for LTV on unit size flat across the board. If you do cash out it has to be used for business use only, you will be required to sign a document that says this.  We allow up to 4 members in an LLC.

We also offer interest only and Arm's.

So yes a product is on the market, but if you looking for cheap fannie mae rates, then no the product is not on the market.

Also this product is not rolled out in every state, but we do offer it in about 25 states.

John Morgan · Answer

I just did one through my credit union. They charged me a point at that rate, but was still the best I could find. My other lender I’ve used offered me 4.125 with two points.

Nathan Shankles · Answer

@John Morgan thanks John. how do you get rates on your investment proper yes as low as 3.8%?

Matthew McNeil · Answer

Have you thought about buying in your name then transferring to the LLC?

Can an LLC get a traditional 30 year mortgage like an individual?

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