An LLC can take out a mortgage, but not the kind an individual homebuyer gets. Fannie Mae and Freddie Mac only buy loans made to “natural persons,” which shuts LLCs out of the 30-year fixed residential market entirely. What’s available instead is commercial financing: shorter terms, higher rates, larger down payments, and underwriting that leans on the property’s income and the LLC’s books rather than a W-2. Expect 45 to 90 days from application to closing, and expect to sign a personal guarantee.
Why the Standard Residential Loan Is Off the Table
Fannie Mae’s borrower eligibility rules limit purchases and securitizations to loans made to natural persons, with narrow exceptions for certain trusts.1Fannie Mae. General Borrower Eligibility Requirements An LLC is a legal entity, not a natural person, so it doesn’t qualify. That one rule is why every LLC mortgage looks different from a consumer mortgage: commercial lenders keep these loans on their own books or sell them into different pools, and they price and underwrite accordingly.
Knowing this upfront saves time. You will not find a bank willing to write a conventional 30-year fixed in your LLC’s name. The question is which commercial product fits the deal.
Loan Products an LLC Can Actually Use
The default product for an LLC buying investment property is a standard commercial mortgage. These typically fix the rate for five, seven, or ten years and amortize over up to 25 years, with a balloon payment for the remaining balance when the fixed period ends. Refinancing is essentially built into the plan. As of early 2026, starting rates run from roughly 5.4% for large multifamily properties to above 6.5% for specialty properties like hotels, with bridge loans starting near 9%.
DSCR loans have become popular for LLCs buying residential rentals. Underwriting focuses almost entirely on the property’s rental income against the mortgage payment, with minimal weight on the borrower’s personal income. Some DSCR products stretch to 30- or 40-year terms with an interest-only period at the start, which keeps early monthly payments low. During that interest-only phase, you build no equity.
An LLC picking up several properties can consolidate financing through a portfolio loan, which bundles multiple assets under one agreement. A blanket mortgage does the same and adds a release clause so you can sell individual properties out of the collateral pool without refinancing the whole loan.
SBA Loans, If the LLC Occupies the Property
If the LLC will occupy the property for its own business rather than rent it out, SBA-backed financing opens up. The SBA 7(a) program covers real estate acquisition up to $5 million with terms as long as 25 years.2U.S. Small Business Administration. Terms, Conditions, and Eligibility The SBA 504 program pairs a bank loan with a government-backed debenture up to $5 million (or $5.5 million for manufacturing and energy projects) and allows down payments as low as 10%.3U.S. Small Business Administration. 504 Loans Both require the LLC to operate as a for-profit U.S. business meeting SBA size standards.4U.S. Small Business Administration. 7(a) Loans Investment property rented to third parties does not qualify.
What the LLC Needs on Paper Before Applying
A sloppy entity file is the fastest way to kill a commercial loan. At minimum, lenders will ask for:
- Articles of Organization (or Certificate of Formation), the founding document filed with the state, proving the LLC exists.
- The Operating Agreement, which governs who manages the LLC and, critically, who has authority to borrow money and pledge the LLC’s property as collateral.
- An Employer Identification Number from the IRS, obtained on Form SS-4, used across all business filings and loan documentation. A single-member LLC still needs its own EIN to borrow as a separate entity.5Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN)
- A Certificate of Good Standing from the state confirming the LLC is current on filings and fees and has not been dissolved or administratively suspended.
- Full identification of every member and manager, including ownership percentages and roles, for regulatory compliance.
The operating agreement deserves extra attention. Many off-the-shelf templates omit a borrowing authorization clause. If yours does, amend it before applying. Lender’s counsel will read that clause closely and flag any ambiguity about whether the person signing has power to bind the LLC.
How Lenders Decide Whether to Approve the LLC
Commercial underwriting turns on a different set of numbers than a personal mortgage. The property’s income leads, but the lender examines everything around it.
Debt Service Coverage Ratio
The single most important number is the Debt Service Coverage Ratio. Divide the property’s net operating income (rent minus operating expenses, before debt payments) by the annual mortgage obligation. A DSCR of 1.0 means the property just covers the mortgage. Most lenders want a minimum between 1.20 and 1.25, meaning the property generates 20% to 25% more income than the mortgage payment. Anything below 1.0 is cash-flow negative and won’t get conventional commercial financing.
To verify the income, lenders want at least two years of the LLC’s federal tax returns along with balance sheets and income statements. They reconcile actual earnings against your projections, and any gap gets scrutinized.
Down Payment and Reserves
Bring more cash than you would for a personal home purchase. Most commercial loans require 20% to 25% down, and some lenders push to 30% for riskier property types or newer LLCs. SBA-backed loans start around 10% down for established businesses. A new LLC without operating history often has to compensate with larger cash reserves and stronger personal guarantees.
The Members’ Personal Finances
Even when the loan is strictly in the LLC’s name, lenders dig into the personal finances of the managing members. That usually means personal tax returns and a personal financial statement covering net worth and liquidity. The lender wants confidence that the people behind the LLC can inject capital if the property hits a rough stretch.
The Personal Guarantee and Your Liability Shield
Here’s where investors get caught out. A common reason to hold property in an LLC is to keep personal assets separate from business liabilities. For small and mid-sized LLCs, though, lenders almost always require a personal guarantee from the principals, and that guarantee punches a hole through the liability shield.
A personal guarantee makes you individually responsible for the LLC’s mortgage debt if the entity defaults. Most commercial loans to smaller LLCs are recourse, meaning the lender can pursue both the LLC’s assets and your personal assets to recover any shortfall after a foreclosure sale. If the property sells for less than what’s owed, you cover the difference.
Non-recourse financing exists but is typically reserved for larger institutional deals or LLCs with substantial net worth and long track records. Even non-recourse loans include “bad boy” carve-outs that convert the loan to full recourse if you commit fraud, file a voluntary bankruptcy, or mishandle property income. Those carve-outs sit in virtually every non-recourse commercial mortgage, and they have teeth.
Costs Beyond the Rate
Commercial mortgages carry upfront costs that catch first-time LLC borrowers off guard. Plan for them well before closing.
- Origination fees, typically 0.5% to 1% of the loan amount, for processing and underwriting.
- A commercial appraisal, more involved than a residential appraisal and often several thousand dollars depending on property type.
- A Phase I Environmental Site Assessment, required by many commercial lenders, generally $2,000 to $5,000 for a typical property and higher for complex industrial sites.
- Legal and closing fees, from a few hundred dollars to $5,000 or more depending on complexity and jurisdiction, plus mortgage recording fees that vary widely.
Prepayment Penalties
Unlike most residential mortgages, commercial loans almost always include prepayment penalties. Three structures show up most often:
- Yield maintenance, which compensates the lender for the interest income they lose when you pay early. It’s calculated from the difference between your loan rate and current Treasury yields, and it can be substantial if rates have fallen.
- Defeasance, where you replace the property as collateral with government securities that generate the same cash flow as your remaining payments. Common in securitized (CMBS) loans and expensive to execute.
- Step-down, a declining percentage of the outstanding balance (for example, 5% in year one, 4% in year two). This is the simplest and most borrower-friendly.
Negotiate prepayment terms before signing. Focusing only on the rate and ignoring the prepayment structure becomes a painful surprise when you want to sell or refinance three years in.
Moving Property You Already Own Into an LLC
Plenty of investors already hold rentals in their personal name and want to transfer them into an LLC for liability protection. This is where one of the most persistent misconceptions in real estate investing lives: the idea that you can quietly deed the property to your LLC without consequences.
Nearly every residential mortgage contains a due-on-sale clause giving the lender the right to demand full repayment when ownership changes hands. Federal law authorizes lenders to enforce those clauses. It also carves out exceptions, including transfers into a living trust where the borrower remains a beneficiary, transfers to a spouse or children, and transfers resulting from death or divorce. Transfers to an LLC are conspicuously absent from the list of protected transfers.6Office of the Law Revision Counsel. 12 U.S. Code 1701j-3 – Preemption of Due-on-Sale Prohibitions
Some lenders don’t actively watch title changes and may never notice. “They probably won’t notice” is not a legal strategy. If the lender does spot the transfer, they can accelerate the loan and demand full payment. The safer paths are refinancing into a commercial loan in the LLC’s name or buying new property through the LLC from the start.
Tax Treatment of the Interest
Mortgage interest is typically the largest deductible expense for an LLC holding rental property. The interest portion of each payment is deductible as a business expense; the principal portion is not, because it reduces the loan balance rather than paying for anything.
Federal tax law caps the business interest deduction at 30% of adjusted taxable income for most businesses, with any excess carried forward. A real property trade or business can make an irrevocable election to opt out of that limitation entirely, at the cost of using the slower alternative depreciation system for the property.7Office of the Law Revision Counsel. 26 USC 163 – Interest Small businesses meeting the gross receipts test (average annual gross receipts of $30 million or less over the prior three years) are exempt from the limitation entirely. Most rental LLCs fall under that exemption, but confirm with a tax professional, particularly if the LLC is part of a larger group of entities.
How Long the Process Takes
The formal application includes the LLC’s legal entity documents, the principals’ personal financial statements, the property’s historical income and expense data, and projected operating numbers for the DSCR calculation. Assemble it carefully. Missing or disorganized documents slow the file down, and commercial lenders have less patience for incomplete submissions than retail shops.
Once the lender accepts the application, underwriting orders a commercial appraisal covering both market value and income-producing potential. A Phase I Environmental Site Assessment may follow depending on the property type. The underwriting team verifies that the LLC member signing has actual authority under the operating agreement, reconciles the financials, and locks in the DSCR against the appraiser’s income projections and the proposed loan terms.
At closing, the authorized signatories execute entity-specific documents: the promissory note, the mortgage or deed of trust, and the personal guarantee. Everything is signed in the LLC’s name by the authorized member. Plan on 45 to 90 days from application to closing, with more complex deals or environmental concerns pushing toward the longer end.