Can you get a mortgage for an LLC?
Yes, but should you?
By Scott Bialek / July 15, 2015
After I set up my LLC, I started calling lenders and quickly found that conventional financing (i.e. loan with the lowest interest rates) is not available for a LLC. I could have used a LLC to buy the property if I was paying with cash but, like most people, I did not want (nor have the ability) to pay cash for the property. I quickly changed paths and bought the property in my own name using traditional conventional financing with insurance to protect myself.
I made this decision because conventional loans are the cheapest and most cost effective way for a real estate investor to buy rental property. Conventional loans have:
- the lowest interest rates available for 1 to 4 family properties (currently in the low 4’s% range),
- fairly low down payment requirements, and
- long term fixed rates (30 or 15 year).
Conventional loans have these attributes because they are supported by the Federal Government and can be sold to one of two government sponsored mortgage entities (Fannie Mae or Freddie Mac). Conventional loans are a great option but loans can only be made to an individual or to a living trust (see my explanation below how to use a trust to get liability protection and a low conventional interest rate).
Over the years, nearly every aspiring real estate investor I meet asks the same question “Can I get a LLC loan for a rental house so I can protect myself.” Since this issue comes up so often, I have continued to look for creative ways to address this issue for our clients. We have come up with four different ways to address this issue:
- Conventional Loan + Insurance: Purchase the property in your your own name to get the lowest rate and buy insurance to protect your assets
- Conventional Loan + Transfer to LLC in Future: Purchase the property in your own name and transfer it into your LLC when it is paid off (if you get a loan with us, I will draw up the legal papers to transfer the property for free when your loan is paid off).
- Conventional Loan + Trust: Buy and finance the property using a Living Trust (we offer low rate conventional loans for rental properties held in a living trust)… I can also help you put together a basic trust for no cost if you are using us to finance your property.
- LLC Rental Property Loan: Buy the property using our new LLC Investor Loan Program.
Conventional Loan + Insurance: The best offer that we have to help Real Estate customers get the lowest rate possible and protect their assets is for us to provide a normal low rate conventional loan in your own name and bundle it with the right kind of insurance. One of the most cost effective offers that we have is to provide a policy to cover your primary residence and extend the liability portion of the policy from your main home to your rental property. The benefit of this program is that you can avoid paying for the liability component for each rental property. This can literally save you thousands of dollars per year depending on the number of rentals you have and the best part is that still end up with the same amount of liability protection on each rental (you are just not double paying for this coverage). We can also bundle all of your insurance for multiple rental properties into one policy. Click here to learn more about ways to save money on your investment property insurance.
Conventional Loan + Transfer to LLC in Future: This option is very simple, just buy the property in your own name and transfer it into your LLC when it is paid off. If you get a loan with us, I will be happy to draw up the legal papers to transfer the property for free to your LLC when your loan is paid off.
Conventional Loan + Trust: With this program, you can set up a Living Trust to purchase the property and then use the trust to get a loan for the rental property. The benefit of this program is that we can put you into a normal conventional loan program. I am happy to put together a basic trust for free if you use us to finance your property.
LLC Rental Property Loan: If none of the prior options meet your needs, our LLC Investor Loan Program is a great option for customers who want the protection of an LLC and who are willing to accept a higher interest rate and make a larger down payment in exchange for this legal protection. This loan product acts more like a “commercial” loan where we (or our lending partners) keep the loan in our own portfolio. These loans cannot be sold to Freddie Mac or Fannie Mae and consequently, have a higher interest rates and they require at least a 30% down payment.
We can also work with you to combine these options so that you have multiple layers of protection (a low rate conventional loan, with the correct legal entity, with a higher liability coverage extended from your primary residence, and an umbrella policy to give you additional protection). I layer protection in this manner since increasing the liability component on your primary residence is not very expensive and ubrealla policies are inexpensive as well. If you are worried enough to want to set up a LLC to buy a rental property, then layering your protection is well worth considering.
The last thing I wanted to mention is that if you are looking for a low down payment loan for your rental property, we also offer a Low Down Payment Investor loan option with just 15% down. The best part is that this loan has no PMI and low Conventional mortgage rates. This is a propitiatory loan product that we exclusively offer to our customers but you will need to hold the property in your individual name. To learn more about this program click here.
In addition to being one of the founder of Hurst Lending, I am also a real estate investor. I have portfolio of residential, apartments, and retail property. I love helping investors build their portfolio and am happy to help to provide advice and suggestions on how to make money investing in real estate that go well beyond what a typical lender can provide. My philosophy is to take advantage of the current low interest rate environment to build a portfolio of high quality real estate that will pay off over the long term.
Please feel free to contact me directly if I can help provide a loan for your next purchase, refinance, or if you just want advice on how to get started or expand you real estate investing activities.
Scott E. Bialek
*Please note that this article is not intended to provide legal advice. You should contact your own attorney to understand the legal protections that are available to you when you purchase real estate.