Buying a house under an LLC
Real estate investors often purchase rental or investment properties under an LLC to protect their personal assets and themselves from liability. However, conventional and government loan programs do not permit an LLC to purchase a primary residence under an LLC.
What is an LLC?
An LLC (limited liability corporation) is an entity which protects the owner’s personal assets from liabilities related to the business.
Can I buy a house under an LLC?
You can buy a house under an LLC and finance it using mortgages offered by portfolio or investment focused mortgage lenders. The LLC will provide you with personal liability protections while also allowing you to enjoy some tax benefits as a business entity. You should seek advice from legal and accounting professionals to understand the pros and cons of buying a house under an LLC before making a final decision.
When is it Smart to Buy a House Under an LLC?
There are a few instances where it would be smart to buy a house under an LLC. These are just a few examples. Check with an attorney to make sure you are making the right decision for you.
You may have multiple investment properties and you would like to shelter your personal assets including your primary residence from being party to a future law suit.
You own a business and would like to fold the costs to live in your primary residence into your business expenses.
You are trying to keep your name from appearing on the ownership records of the property. Celebrities and others who prefer to remain anonymous purchase their homes under an LLC for this reason.
Pros and Cons of Buying a House Under an LLC
- Protects the home owner’s personal assets
- Possible tax exemption benefits
- The home asset can be a benefit the business
- Additional privacy for the homeowner
- Fewer lending options when buying a house under an LLC
- Rates from portfolio lenders may be slightly higher
- It is possible that a larger down payment may be required
- Cannot use conventional or government loans such as FHA
- Potential capital gains impact when the home is sold
How to Buy a House Under an LLC
When purchasing a house under an LLC, lenders will require the same documentation that you would provide if you were applying without the LLC as the purchasing entity. However, you will also likely have to provide the following:
- Certificate of formation detailing your ownership of the LLC
- Operating agreement of the LLC
- Documentation of the income generated by the LLC
- Possibly a current year P&L statement for the LLC
- You may need to do a 1031 tax deferred exchange
Your offer to the seller will be the same as if you were buying as an individual. The rest of the home buying process will also be the same. You will have the same contract, appraisal and standard and customary fees associated with the purchase process and financing.
The most difficult part of the buying process is establishing the LLC if you do not have one already and then finding a lender who is willing to originate the loan for you under an LLC.
Lenders Who Can Finance a House Under an LLC
This is a list of just a few lenders who are able to finance your home under an LLC. There other options in addition to these lenders and the guidelines are constantly changing. Each will have different credit score and down payment requirements. They may not be licensed in every state and you may also find that there are loan amount minimums.
Let us help you to figure out which lender is the best match based upon your personal scenario.
- Spencer Savings Bank
- Sprout Mortgage
- First National Bank of America
- Velocity Mortgage
- Caliber Home Loans
*These are just a few examples and the lenders who offer loans for purchasing a house under an LLC and they often change guidelines and offerings. We have a full list of lenders who can help.
Buying Investment Properties Under an LLC
Most of the real estate purchases under an LLC occur when the property is being purchased for investment purposes. Usually a multi family type of building for example. In this situation, the idea is to protect yourself from any liabilities that may occur while managing the property as a business.
Some real estate investors have also dealt with false law suits related to their investment properties. This is another reason to protect yourself and your other assets from any personal liability that may arise from a law suit.
Can an LLC Get a Mortgage?
An LLC can get a mortgage to purchase an investment property. In most instances, the individual who owns the LLC will need to apply using his or her credit scores as one of the qualifying factors.
Can I buy a house under an LLC and then rent it to myself?
You can buy the home under an LLC and rent it back to yourself. However, you may end up with a larger tax problem than if you just purchased the home as a sole individual. You will create ghost income for your LLC which will need to be offset by expenses. Over time, the benefit will be negated.
In addition, if you are taking business related tax deductions against your primary residence, you will likely reduce the amount of tax free capital gains on the property.
Is it beneficial to put rental properties into an LLC?
Purchasing a rental property under an LLC is the preferred method to protect your personal assets. If the rental property gets foreclosed upon or a tenant sues the LLC, you cannot be held personally liable and your personal assets will be safe.
What are the mortgage rates when buying a house under an LLC?
You can expect that non-QM lenders will likely charge a bit of a premium to finance your home under an LLC. The rates will be slightly higher than a conventional loan.
What down payment is needed when buying a house under an LLC?
There are lenders who can finance your home with just 10% down even if the home will be owned by an LLC.
What are the interest rates when buying a house under an LLC?
You will be working with portfolio lenders or non-QM lenders when buying a home under an LLC. As a result, you can expect the interest rates to be slightly higher than a conventional mortgage.