How to Finance a LLC

[Derek Olmschenk]

Hello BP community! I'm new to the real estate game and just trying to figure out the beginning steps before I can make an offer. I recently talked to a lender about financing a rental property that I would own using a LLC. He responded by saying that if it was going to be owned by a LLC, I would need to apply for a commercial loan. He explained that commercial loans come with slightly higher interest rates and balloon payments whereas conventional mortgages offer great rates and no balloon payment. Is this normal? If so, are there ways to work around it?

Thanks for the help!

[Michael Glist]

This is typical most lenders for a conventional loan will not allow you to purchase in an LLC. You could purchase in your name and transfer over to an LLC after closing but I do not recommend this as there is typically a clause in your agreement with the lender stating that you cannot do that and if you do they can call the balance due.

Getting a NON-QM or commercial loan is going to be your best option. They will allow the property to be in an LLC. Yes the rates are slightly higher but you you should be able to get a reasonably low rate and have the option to get a fixed rate or an arm and also have options on no balloon as well as no prepayment penalty.

If you are looking for shorter term financing a hard money lender would also be a good option. The hard money lender will likely be offered at a higher rate but will likely not have a prepayment penalty. So I would just suggest looking at them side by side to see which is better for you and your deal. 

I hope this information helps.