Closing a DSCR Loan in an LLC

Why investors want this

Liability separation, cleaner bookkeeping, partners on a cap table, and estate planning are the usual reasons — questions for your attorney, not for a lender. The lending reason is simpler: conventional agency loans generally require an individual borrower on title, so an investor who wants the entity to own the property has to use a business-purpose loan, and DSCR is the most common one.

What the lender asks for

• Articles or certificate of organization and a certificate of good standing from the state.
• The operating agreement, showing who the members are and who can sign.
• EIN letter.
• A personal guarantee from members, commonly those above an ownership threshold the program sets. The guarantee is what makes your credit relevant even though the LLC is the borrower.
• Credit and reserves for the guarantors, as on any DSCR file.

Single-member, multi-member, and partners

A single-member LLC is the simplest case. With partners, each member above the program's ownership threshold is usually a guarantor, which means each one's credit is reviewed. Members below the threshold often are not. A newly formed LLC is fine on most programs; the entity does not need a track record because the property, not the entity, is what qualifies.

Transferring a property you already own

Refinancing a rental you hold personally into an LLC is common, and the DSCR refinance can close with the LLC taking title at closing. Two things to raise before you start: whether your current lender's due-on-sale clause is an issue (a refinance replaces that loan, so usually not), and how your state's transfer tax treats a deed into an entity you control. Both are attorney questions worth ten minutes.

Common questions