· Education · Sayasone Phongvichith
Why an LLC or corporation holds title, and who guarantees the loan
Every RED loan is a business-purpose loan held in an LLC or corporation. Here is what the entity does, who has to guarantee, and what is not eligible.
Before the desk looks at your property, it looks at who is borrowing.
What the entity is
The borrower is the LLC or corporation, not you personally. Partnerships, nonprofits and charitable organizations are not eligible. A home you or your family will live in is not eligible either.
Who guarantees
The loans are full recourse, so the people behind the entity guarantee them personally. The published rule depends on the program:
- Fix & Flip and Stabilized Bridge: at least 51% of the borrowing entity must guarantee. On cash-out refinances, all members must guarantee.
- Rental Loan (DSCR): any member who owns more than 19% must personally guarantee. The minimum FICO is taken from the lowest mid-score among all personal guarantors.
- Stabilized Bridge: the guarantor's net worth must be at least 10% of the loan amount.
Why it matters before you buy
If you are buying with a partner, check the ownership split before you set up the entity. A member just over 19% on a rental loan, or a group that needs to reach 51% on a flip or bridge, changes who has to sign and whose credit the desk reads.
What to send the desk
The entity formation documents and the guarantor's FICO and credit authorization. Ask your attorney or CPA how to set up the entity. The desk cannot give legal or tax advice. Submit it as a scenario, a preliminary inquiry only. Pricing is quoted per deal.
Program figures are indicative only and subject to complete documentation, underwriting, appraisal and final credit approval. This post is general information, not financial or legal advice.