Should You Buy That Home in Your Name?
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.