Most mortgage lenders specializing in residential mortgages will not extend financing unless you own the property in your personal name. This is usually a requirement of the investor who purchases the mortgage from the lender who closes on your loan. And this is the case whether the property is your primary residence, second or vacation home, or rental/investment property.
Why would you create an LLC or corporation to hold title to your real estate?
The main reason is usually to limit your personal liability – say, in case someone slips and falls while on your property. For example: If title is in your LLC, you are more likely able to shield your personal assets against a claim (however you should always consult with your attorney).
If you decide not to purchase a residential property in your personal name, however, the loan will be deemed a commercial loan – not a residential loan. While there are many community banks that will lend to an LLC or corporation, you would generally always need to personally guarantee the loan in any event. Also, commercial loan interest rates tend to be a little higher than a residential loan in your name.
Some people acquire their residential properties in their personal name, but then later transfer title via quit claim deed to an LLC. As a general rule, this is not permitted within the loan documentation – but residential lenders do not typically audit title (especially if you continue making your monthly mortgage payments on time).
Here’s the Point:
The interest rate will usually be more favorable when you purchase a residential property in your individual name.
First-time homebuyer programs (FTHP’s), when available, can make purchasing a home more affordable for low-to-moderate income individuals and families – but there is generally always a catch. For example, the Florida Housing Finance Corporation advertises that they offer fixed, low-interest rate FTHP loans. This is true, however the rate is actually higher than what is offered by the most active mortgage lenders in the industry.
Before you get excited about being approved under a government-sponsored first-time homebuyer program, you should know:
First-time homebuyer programs generally always require another separate government approval stamp. It is therefore not uncommon for loans to be declined at the last minute when it would appear the borrower could qualify for a regular conventional loan.
Sometimes all it takes is a little more preparation and guidance – and a first-time homebuyer can comfortably qualify for more cost-effective conventional financing.
Here’s the Point:
First-time homebuyer programs, if available, are not always the best or most cost-effective solution.