How to Transfer a VA Loan to an LLC
VA loans are a convenient and flexible way to purchase a home. Naturally, one of the common questions about them is can investors or landlords use them? More specifically, are there any VA loan transfer requirements for an LLC?
Some veterans wish to transfer their VA home loan to an LLC business structure. However, VA loans guidelines around this can be complex. While VA loans can be assumed by another buyer, transferring them to an LLC is not as clear-cut.
Transferring your VA loan to an LLC
An LLC or limited liability company is a type of business structure that is a separate legal entity from the owner(s). This means that the owners have no personal liability over the business’ debts or liabilities. It’s appealing for real estate investors because this limited liability offers a degree of protection.
An LLC structure means that a landlord cannot be sued beyond the specific property’s value. If tenants wish to sue the landlord, they can’t go after their other properties, retirement accounts, or other assets.
However, VA loans do not work in the same way as conventional mortgages. They are designed for people to buy a home as a primary residence and so it becomes tricky when someone wants to invest with a VA loan.
Why you can’t assume a VA loan to your LLC
It is possible for one person to assume the loan from another, which means taking over responsibility for repaying the loan. However, only individuals can assume a VA loan – not business entities. The VA does not recognize LLCs as eligible for a loan assumption.
While you can’t directly transfer a VA loan to your LLC, there is one alternative.
Transferring title on a VA loan to an LLC
While assuming the loan as an LLC isn’t possible, the alternative is to transfer the title instead. Learn more about VA loan transfer requirements here.
When a person purchases a home, they receive a title of ownership to that property through a general warranty deed. If you purchase a home with a VA loan, that general warranty deed will be in the name of the borrower.
However, after the purchase goes through, borrowers can transfer the title of ownership via a quitclaim deed, which carries no warranties. This is the simplest way that an individual borrower can transfer their ownership of a property to an LLC.
The downside is that without warranties, this provides the buyer with little protection. It also means that you personally renounce your ownership of the property.
This can become a problem later down the line if you ever want a cash-out refinance. If you have already transferred your title to an LLC, most lenders won’t allow you to use a cash-out refinance loan. This can significantly limit your options in the future, especially if you want to free up cash to purchase other properties.
If you are looking to take out a VA loan or manage an existing one, we can help you every step of the way.
If you’d like to learn more about VA loans, check out this blog post that covers the topic of how one would get a VA loan with bankruptcy or learn how to transfer a VA loan to conventional.
