How to Refinance a Residential Loan Held in an LLC’s name?

We’ve written several detailed articles on why it’s important to invest in real estate using an LLC. Actually, it doesn’t matter much whether you are investing in the name of an LLC or any other type of business entity. What’s important is that you don’t invest in your personal name. Why? Investing in the business name protects your personal assets, helps manage your risk, protects your privacy, and might come with some tax benefits. Also, if you are working with a hard money lender, they usually prefer lending to businesses rather than individuals.

While all of us might be on the same page regarding why and how investing in an LLC’s name helps manage risk, those investors who purchased a property in the business name and want to keep it in their portfolio after their rehab is completed (buy-and-hold) might have fewer options for refinancing. This is why it’s important to know which lenders offer financing for properties held in the LLC’s name, where to find them, and how to shop for the best deal.

Why Many Lenders Steer Away from Financing Properties Owned by LLC’s?

Obtaining a residential loan in the name of an LLC is possible as long as you remember that not all lenders offer it. Simply put, traditional lenders want to lend to people, not legally protected companies. Those lenders may perceive financing properties owned by LLCs as riskier than those owned by individuals. This is because LLCs are more complex legal entities, and there may be concerns about the financial stability of the LLC and its members.  This is why the Fannie Mae and Freddie Mac underwriting guidelines do not allow borrowing in an LLC’s name. Unfortunately, this renders their favorable-term financing unavailable for homes with titles vested in an LLC, making it a bitter pill for cost-conscious real estate investors. The good news is that there are plenty of other options available.

What Lenders Provide Financig to Properties Owned by LLC’s?

Despite these challenges, there are lenders who specialize in financing properties owned by LLCs and are willing to work with real estate investors to provide financing solutions. These include:

Portfolio Lenders: Portfolio lenders are financial institutions that originate and hold mortgages in their own investment portfolios rather than sell them on the secondary market. Some portfolio lenders may offer mortgages for LLC-owned residential properties. Among those portfolio lenders are:

• Regional Banks: Regional banks may have more flexibility in their lending criteria compared to larger national banks and may offer financing for LLC-owned residential properties.
• Community Banks: Local community banks may be more flexible in offering mortgages for LLC-owned properties, especially if the property is in the bank or credit union’s service area.
• Credit Unions: Credit unions may also offer financing for LLC-owned residential properties, especially for credit union members.

Non-Bank Lenders: Non-bank lenders, such as mortgage lenders that operate online or through brokers, may also offer mortgages for LLC-owned residential properties.

Commercial Lenders: Some commercial lenders specialize in providing mortgages for residential properties held in an LLC’s name. These lenders may have specific requirements and terms tailored to LLC-owned properties.

Private or Hard Money Lenders: Private lenders, including individuals or private investment firms, may provide financing for LLC-owned residential properties, although the terms and requirements may vary widely. At New Funding Resources, we offer options to refinance the existing hard money loan into a new hard money loan with us. This process is called hard money refinance. However, bear in mind that our loans are short-term and not suitable to be held for more than a year.

How to Find Lenders Who Finance Residential Properties Held in LLC’s name?

Finding lenders who can finance a residential property held in an LLC’s name may require some research, as not all lenders offer this type of financing. Here are some steps you can take to find lenders who can finance a residential property held in an LLC’s name:

1. Ask for Referrals: Reach out to other real estate investors or professionals in your network and ask if they know of any lenders who specialize in financing LLC-owned residential properties. Talk to your real estate agent, as he or she regularly works with loan officers from different companies. Last but not least, ask your private lender.
2. Consult with Mortgage Brokers: Mortgage brokers often have access to a wide range of lenders and may be able to help you find a lender that offers financing for LLC-owned residential properties.
3. Check with Local Banks and Credit Unions: Some local banks and credit unions may offer financing for LLC-owned residential properties. Contact them directly to inquire about their lending programs.
4. Search Online: Use search engines to look for lenders that offer financing for residential properties held in an LLC’s name. Use keywords like “lender for LLC-owned residential properties” ,”LLC mortgage lender,” or “LLC mortgage loans.”

How to Identify the Best Long Term Financing Optione for an Investment Property Held in LLC’s Name?

Once you have identified a few potential lenders who lend to LLC’s, make sure your fit their underwrting requirements. Here is the list of questions your might want to ask:

• Do they require personal guarantees from the members (most likely, they do)?
• Do they have minimum credit score requirements for those personally guaranteeing the loan?
• Do they verify the income of those personally guaranteeing the loan?
• What is the maximum LTV?
• Are they reserve requirements?
• In case of a refinance, how long does your LLC need to own the property before refinancing is possible?

Once you know that you fit their underwriting requirements, it’s time to choose the best lender and loan for your investment property. As with any lender, the rates are important, but they are not the only criteria you should consider. Make sure you have a clear understanding of the following areas:

• Is a lender a broker or a direct lender?
• Is this lender local to your area?
• What kind of customer service they offer? How responsive are their representatives and underwriters?
• Is your rate going to be fixed for the duration of the loan, or is it an adjustable rate? If the rate is adjustible, is it a three-year ARM, five-year ARM, etc?
• How long is the lender’s underwriting process? Ask them to be realistic. Bear in mind, that long-term loan undertwriting takes from 30 to 40 days on average.
• What kind of fees this lender charges? Ask about BOTH points and all other fees.

Summary

You might pay a bit more to finance a property held in an LLC’s name, but that slight price increase is well worth it to avoid the risk you would have encountered by owning it in your personal name. Plenty of lenders offer financing to LLCs. As a real estate investor in Maryland, Virginia, and Washington, DC, you will find plenty of options to obtain reasonably-priced long-term financing for your rental portfolio.