Closing in an LLC: vesting, guaranties, and what your CPA will ask
Why title vests in the entity, what you personally sign, and the DTI question that never comes up.
Banks make you close rental property in your own name and then count the mortgage against your personal borrowing power. Business-purpose lending flips that: the LLC takes title, the loan lives on the entity, and your personal DTI never enters the file. Here's exactly how that works — and what you still sign.
Why the entity, and why lenders insist
Vesting in an entity is what makes the loan business-purpose — a commercial transaction between a lender and a business, exempt from the consumer-mortgage rulebook that slows bank files to a crawl. You get the liability separation your attorney wanted anyway; the lender gets a clean legal frame. It's the rare requirement that serves both sides.
What you still sign personally
The guaranty. On standard files it's full recourse: if the entity defaults, the guarantors stand behind it. Every member holding roughly 20% or more typically signs and gets credit-pulled; smaller passive members usually don't. "Non-recourse except carve-outs" exists in larger commercial deals — fraud, waste, environmental — but for 1–4 unit rental loans, assume you're guaranteeing the debt. The entity protects you from tenants and slip-and-falls, not from your own lender.
The three documents
Have all three as PDFs before you go under contract and the entity side of your file is done in one upload. Forming the LLC the week of closing works too — lenders see it constantly — but the state's processing time becomes your problem, so file early. And if title is currently in your name, deeding into the LLC at or before closing is routine; just tell your insurer so the policy names the right owner.
What your CPA will ask
Two things, usually. First: where does the interest deduction land? On the property's schedule — the entity's return for partnerships, Schedule E for single-member pass-throughs — not on your personal mortgage-interest line. Second: does the loan report on your credit? Generally no; business-purpose loans to entities typically don't hit consumer bureaus, which is why your tenth rental doesn't wreck your car-loan application. Confirm both with your CPA for your structure — that's their call, not ours.