I'm in Washington state and wanting to setup an LLC with myself and my dad on it.I've talked to two banks here I've dealt with in the past and one said they can't lend in IL as they have no branches there.

Budd,I see two issues with this. 1) which HML will lend you money to buy at the county auction?

(But probably not as rent to own to own sellers over price the property since you don't have the property appraised from your lease arrangement, this can also be predatory lending and/or dealing). 

I set up a check book account and use it for private lending.

That would essentially double your lending power right?

Having said that interest rates are so low and commercial lenders are so willing to lend, I'd keep the sellers money in place just long enough to stabilize it than dump them for a nice commercial bank loan with maybe a 7 year adjust. 

Your DTI will be the bigger issue.FNME will not lend to LLC's, but there are lenders out there that will.Talk to a broker or two that uses multiple lenders...and hopefully invests in property themselves.

Here's a briefing on what's going on:The Consumer Financial Protection Bureau (CFPB) issued a new rule that combines mortgage disclosures previously established by the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into a single rule effective October 3, 2015.

I'm making about 9% lending in LA and OC area.

Why don't you pull a list of all the projects you would have liked to lend on and see who did the financing and contact the lender?