An LLC can get a mortgage, but not the kind of mortgage most homebuyers are picturing. Conventional residential loans require a human borrower, so an LLC has to look at commercial loans, portfolio loans, or specialized investor products like DSCR financing. Expect a down payment of 20% to 30%, an interest rate 0.5% to 3% above consumer rates, and a personal guarantee from at least one member. For real estate investors, the extra cost buys real separation between the property’s liabilities and your personal assets.
Why Conventional Lenders Say No
Your LLC has the legal power to sign a mortgage. The problem is finding a lender willing to write one. Fannie Mae’s selling guide limits eligible borrowers to natural persons, with narrow exceptions for certain trusts.1Fannie Mae. General Borrower Eligibility Requirements LLCs aren’t on the list. Because most residential lenders sell their loans into the Fannie Mae or Freddie Mac secondary market, they follow those borrower restrictions.
That puts LLC borrowers outside the conforming loan universe entirely, which is where the rate premium comes from. Lenders who keep loans on their own books, or sell to private investors instead, can set their own eligibility rules. Many actively court LLC borrowers, but on their terms.
One boundary worth naming up front: if your LLC was formed in one state and buys property in another, most states require you to register as a “foreign” LLC there before closing. Lenders check for this. Skipping it can jeopardize both the loan and the liability protection you formed the LLC to get.
Loan Types That Work for an LLC
Four categories cover most LLC mortgage financing.
DSCR loans are the most common vehicle for LLC-owned rentals of one to four units. Underwriting looks at the property’s rental income rather than the members’ personal income. Lenders want a debt service coverage ratio of at least 1.2, meaning the rent covers the monthly debt payment with 20% to spare. The managing member’s credit score usually needs to be 660 or higher, and most lenders expect six months of principal, interest, taxes, and insurance held in reserve after closing.
Commercial real estate loans come from banks’ commercial divisions and suit larger or mixed-use properties. Underwriting weighs both the property’s income and the LLC’s financial strength. Terms are shorter than residential loans, often five to ten years with a 25-year amortization, and rates currently run roughly 5% to 9% depending on property type and borrower profile.
Portfolio loans come from banks and credit unions that keep certain loans on their own books. Because they aren’t bound by secondary market rules, they can approve LLC borrowers case by case. Terms and pricing vary widely, so shopping several portfolio lenders is worth the effort.
SBA 504 loans can finance up to $5.5 million on favorable terms if the LLC operates a business out of the property. There’s an owner-occupancy requirement: the business must occupy at least 51% of an existing building or 60% of new construction.2U.S. Small Business Administration. 504 Loans Pure investment rentals don’t qualify.
What the Down Payment and Rate Will Look Like
Plan on 20% to 30% down. Most LLC mortgage products land around 25%, well above the 3% to 5% available on owner-occupied conventional loans. Lenders see entity-owned investment properties as carrying more default risk than a borrower’s primary home, and they price the equity requirement accordingly.
Interest rates run 0.5% to 3% higher than current consumer rates. A strong credit profile for the guarantor, a low loan-to-value ratio, and a property with solid rental income push you toward the low end of that range. Some lenders offer rate buydowns if you’re willing to pay additional upfront points.
Documents the Lender Will Ask For
Lenders need to confirm your LLC exists, is authorized to do business, and has designated someone with authority to sign. The core package:
- Articles of Organization filed with your state’s secretary of state, proving the LLC was legally formed.
- The Operating Agreement, which shows member roles, ownership percentages, and who has signing authority. Lenders want to see that the person at the closing table can actually bind the LLC.
- EIN confirmation, obtained through IRS Form SS-4, so the lender can verify the entity’s tax reporting status.3Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN)
- A Certificate of Good Standing from your state, confirming annual fees are paid and the LLC is active. A lapsed LLC kills the deal.
- Commercial general liability insurance on the property. For multifamily properties, Fannie Mae’s multifamily guide sets the floor at $1 million per occurrence and $2 million in aggregate, plus umbrella coverage scaled to the number of units. Non-Fannie lenders apply similar minimums.4Fannie Mae. Property and Liability Insurance
Enter the LLC’s legal name exactly as it appears on state filings. A mismatch between your articles, your application, and your insurance certificate creates delays that push closings.
You Will Almost Certainly Sign a Personal Guarantee
This is where the liability protection gets complicated. Nearly every lender financing a small or mid-size LLC mortgage requires at least one member to sign a personal guarantee. If the LLC defaults, the guarantor agrees to repay from personal assets. After a foreclosure sale, the lender can pursue the guarantor’s bank accounts, wages, and other property for any shortfall.
Most LLC mortgages use full-recourse guarantees covering the entire unpaid balance plus the lender’s legal costs. That effectively creates a hole in the LLC’s liability shield for this specific debt. The LLC still protects you from slip-and-fall claims and other general liability tied to the property. The mortgage itself is another matter, because you’re personally on the hook.
Non-recourse financing exists but is mostly reserved for large institutional deals or borrowers bringing substantial equity and a long track record. If a lender offers non-recourse on a smaller deal, read the “bad boy” carve-outs carefully. They restore full recourse if the borrower commits fraud, files bankruptcy voluntarily, or violates specific loan covenants.
The Due-on-Sale Problem When Moving Existing Property Into an LLC
Many investors already own property in their own name with a conventional mortgage and want to transfer title into an LLC. This is where a strategy that sounds simple can go wrong. The transfer can trigger the due-on-sale clause in your existing mortgage, letting the lender demand immediate repayment of the entire balance.
Federal law gives lenders that right, and it carves out specific exemptions. Those exemptions cover transfers into inter vivos trusts where the borrower remains a beneficiary, transfers to a spouse or children, and transfers resulting from death or divorce.5Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions Transfers to an LLC are conspicuously absent. Even a transfer from you personally to your own single-member LLC is a change in the titleholder, and the lender is within its rights to call the loan.
Plenty of lenders don’t immediately enforce the clause as long as payments keep coming, but “they probably won’t notice” is not a legal strategy. If the lender does enforce, you’d face paying off the full balance, refinancing under pressure, or transferring the property back to your own name. Some investors request written consent from the lender before transferring, though lenders are under no obligation to grant it.
The cleaner route is financing the property in the LLC’s name from the start, or refinancing into an LLC-eligible product before you touch the title. The interest rate premium is the real cost of doing it right.
Keeping the Liability Shield Intact
Holding property in an LLC separates your personal assets from the property’s liabilities, but only if you treat the LLC as a separate entity. Courts can “pierce the veil” and hold you personally liable when the LLC looks like an extension of yourself. Paying the mortgage from your personal checking account, depositing rent into your personal account, or skipping basic formalities like maintaining an operating agreement all give a plaintiff’s attorney ammunition to argue the LLC is a sham.
The fix is straightforward. Open a dedicated bank account for the LLC. Run all property income and expenses through it. Keep personal finances completely separate. Document major decisions in writing. Keep annual state filings current so the LLC stays in good standing. These steps cost almost nothing and decide whether the shield holds up in court.
Timeline, Reserves, and Signing at the Table
Once you’ve chosen a lender and submitted documentation, underwriting on commercial and DSCR loans typically takes 30 to 60 days. The lender orders a commercial appraisal, which runs $2,000 to $5,000 or more for complex properties. Expect additional document requests during underwriting, especially if the LLC is newly formed or the property’s rental history is thin.
After approval, the lender issues a commitment letter with the final interest rate, loan-to-value ratio, and any conditions to satisfy before closing. At the closing table, an authorized member or manager signs the promissory note and deed of trust on behalf of the LLC. The signature block matters: it should identify the signer as acting in their capacity as a member or manager of the named LLC, not individually.
Closing costs on LLC mortgages generally run 1% to 3% of the loan amount, covering recording fees, title insurance, lender fees, and state-level mortgage recording taxes where they apply. After signing, the title company or closing attorney records the mortgage and deed with the county, creating the public lien.6Consumer Financial Protection Bureau. What Can I Expect in the Mortgage Closing Process Budget for six months of reserves that the lender will verify are sitting in the LLC’s account before funding.