Can an LLC Take Out a Mortgage?
For a standard conventional mortgage and government-backed programs such as FHA, VA and USDA loans, borrowers are required to be "natural persons." This means an LLC cannot take out a mortgage.
If you want to finance a property that is legally owned by an LLC using these programs you may be required to transfer ownership of the property to the LLC members to get approved for a mortgage. The property ownership can be transferred using a quit claim deed or similar legal document.
In this scenario, one or all of the LLC members holds title to the property and is also listed as a borrower on the mortgage. This means they own the property and are legally obligated for the mortgage and monthly payment.
While the guidelines outlined above apply to the majority of borrowers and loans there are exceptions when it is possible for an LLC to take out a mortgage. You just need to find the right lender and program.
Some larger regional and national banks may be willing to offer mortgages to LLCs because they usually keep these loans on their own balance sheet. This allows these banks to offer qualification requirements that are more flexible than standard mortgage industry guidelines.
It is important to keep in mind that if you want to qualify for an LLC mortgage with a traditional bank you are typically required to personally guarantee the loan. This means that you are individually responsible for the mortgage even if the LLC owns the property and takes out the loan.
We should also highlight that the loan terms, including your mortgage rate and closing costs, are usually higher for an LLC mortgage than for a standard loan. You may be eligible for better loan terms if you open a bank or brokerage account with the lender and deposit significant funds. With certain lenders this may be a condition to qualify for the mortgage.
We recommend that you contact multiple lenders in the table below to review their qualification requirements and to compare loan terms. Shopping several lenders is the best way to save money on your mortgage.
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In addition to larger banks, private money lenders also offer LLC mortgages. Also known as hard money lenders, these lenders should be your financing option of last resort because you are usually required to pay a much higher interest rate and closing costs with a private money loan. You may also be required to pay additional fees such as a prepayment penalty.
What You Need to Know About a Private Money Mortgage
Similar to banks, private money lenders usually require borrowers to personally guarantee the LLC mortgage. Unlike banks, however, you cannot qualify for better loan terms by transferring funds to a private money lender because they do not accept deposits. If you apply for a private money mortgage, be sure to fully understand the higher rate, costs and fees, including any prepayment penalty, charged by the lender.
You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by location, type and loan program. For example, you can search for private money lenders in your state to determine if they offer LLC mortgages.
To summarize, for most loan programs and lenders, an LLC is not eligible for a mortgage. Certain lenders, however, do offer LLC mortgages but the loan terms are usually more expensive than for a standard mortgage. Additionally, even if the LLC owns the property being financed and takes out the mortgage, you usually are personally responsible for the loan.
Sources
"B2-2-01, General Borrower Eligibility Requirements." Selling Guide: Fannie Mae Single Family. Fannie Mae, July 28 2015. Web.
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