Types of Multifamily Financing: Rates, Terms & Qualifications
Multifamily financing is a mortgage used for the purchase or refinancing of smaller multifamily properties that have two to four units and large apartment buildings that have five or more units. Multifamily loans are a good tool for both first-time real estate investors and seasoned professionals. Rates are generally between 4.5 percent and 12 percent with terms up to 35 years.
If you’re looking for a permanent multifamily loan for rental units you can check out Visio Lending. They’re a national lender that can finance 2 – 4-unit buildings up to 80% LTV. Terms are 30 years with fixed or variable competitive rates. Apply online today and get pre-qualified in a few minutes.
4 Types of Multifamily Loans
Type of Multifamily Loans
Conventional Multifamily Mortgage
Investor who wants to purchase a 2-4-unit building in good condition and may already have a banking relationship with a traditional lender
Government Backed Multifamily Mortgage
Owner-occupant of a 2-4-unit property or large investor who wants to use an FHA multifamily loan to purchase a 5+ unit building
Portfolio Multifamily Loan
An investor who doesn’t meet the qualifications of a conventional mortgage or an investor who wants to finance multiple properties at once
Short Term Multifamily Loan
A fix-and-flip investor who wants to purchase a distressed property quickly
Conventional Mortgage for Multifamily Properties
Conventional mortgages for buying a multifamily home are permanent “conforming” loans offered by traditional banks and lending institutions. These mortgages have terms of 15 to 30 years and can finance multifamily properties between two and four units but can’t finance apartment buildings with five or more units. Conventional mortgages are conforming because they typically adhere to Fannie Mae’s required qualifications and maximum loan amounts. However, they aren’t backed by the federal government.
Conventional mortgages for multifamily homes are right for investors who want a long loan term. They’re right for investors who purchase a multifamily property that has already been rehabbed. They’re also right for investors who already have a banking relationship with a financial institution that offers multifamily loans.
The rates found on a conventional mortgage can be either fixed or variable. Fixed rates are fully amortized throughout the loan’s term while variable rates typically reset after a seven- to 10-year period. Variable interest rates are based on the six-month stated Intercontinental Exchange London
Where to Find a Conventional Mortgage for Multifamily Properties
You can use Winston Rowe and Associates to connect with multiple lenders and receive multiple offers at once. They can help you find the best rates, terms and fees on your conventional mortgage quickly.
Government-backed Multifamily Financing
Government-backed multifamily financing is multifamily loans sponsored by Fannie Mae and Freddie Mac as well as the Federal Housing Administration (FHA). There are more than five government-backed multifamily financing options, which can either finance properties with two to four units or properties with five or more units.
Government-backed multifamily loans are right for investors who want to live in one of the units and rent out the other units. Investors who only have a small down payment can also benefit from government-backed multifamily loans. They’re also right for larger investors who want to purchase a five or more-unit property with an FHA multifamily loan.
Fannie Mae and Freddie Mac also have multifamily financing loans that can finance properties with five or more units. These government-backed loans are often referred to as “small balance loans” or “multifamily loans.”
Both Fannie Mae and Freddie Mac multifamily loans have terms between five and 35 years. The time to approval and funding with these multifamily loans can be 60 to 90 days. For FHA-backed multifamily loans, the term can be as long as 35 years. Because there are more regulations and guidelines with FHA loans, the time to approval and funding is longer at 60 to 180 days.
Fannie Mae and Freddie Mac’s multifamily financing options together can fund the purchase of a multifamily property between two and five units or more. Just remember that the conforming loans can finance properties between two and four units while the nonconforming multifamily loans can finance properties of five or more units.
The Fannie Mae, Freddie Mac and FHA multifamily financing options are originated and offered by government-approved mortgage lenders. For example, the Commercial Real Estate Finance Company of America offers all government-backed multifamily loan options.
Portfolio Loan for Multifamily Properties
A portfolio loan for multifamily properties is a nonconforming loan used to purchase a multifamily property between two and five or more units. Portfolio loans for multifamily properties are permanent mortgages with terms between three and 30 years.
These types of multifamily loans are right for investors who need more flexible multifamily loan requirements. They’re also right for investors who want to finance multiple properties at once because they can finance four to 10 properties simultaneously.
Where to Find Portfolio Loans for Multifamily Financing
Remember that since portfolio loans are nonconforming loans, they’re offered by lenders of all shapes and sizes. Traditional banks, credit unions and savings and loans, as well as private lenders, can all offer portfolio loans.
Winston Rowe and Associates capital sources offer multifamily portfolio loans for rental properties with two to four units. The national lender can finance up to 80 percent LTV. Terms are 30 years with fixed or variable rates that are competitive. Apply online and pre-qualify in minutes.
Short-term Multifamily Financing
Short-term multifamily financing is a non-permanent multifamily loan option with terms that range from six to 36 months. These loans include both hard money loans and bridge loans with monthly payments that are usually interest-only.
Short-term multifamily financing loans are right for investors that want to season, renovate or increase the occupancy a multifamily property in order to meet the stricter requirements of a permanent multifamily loan. Furthermore, some investors use these non-permanent options to buy a property and wait until they meet the personal qualifications before refinancing.
The LTV ratio is based on a multifamily property’s current fair market value and is used to finance properties in good condition. The loan-to-cost (LTC) ratio, on the other hand, is based on the combined costs of purchasing and renovating a multifamily property and is used for properties in poor condition. This means that an investor should expect to cover 10 percent or more of a property’s purchase price or 25 percent or more of a property’s purchase price plus renovation costs.
Permanent Multifamily Financing Options
Permanent multifamily mortgages have repayment terms of five to 35 years and have a loan-to-value ratio (LTV) of up to 87 percent. Interest rates range between 4 percent to 6 percent and rates can be fixed or variable. Permanent multifamily mortgages are the most common type of multifamily financing and account for 93 percent of outstanding multifamily loans.
Although permanent loans are generally long term, there are some shorter options. For example, government agencies offer loans that have terms between five to 10 years.
These multi-family loans are right for:
Investors who intend to pay off a multifamily loan within 10 years
Investors who need lower payments at the start of the loan
Investors who want an adjustable rate loan
Investors who want to renovate a multifamily property during a five to 10-year period
On the other hand, long-term permanent multifamily loans have terms between 10 to 35 years. Monthly payments are typically amortized during the entire term. What’s more, interest rates are typically fixed.
Long-term permanent multifamily financing options are right for the following investors:
Investors looking to purchase a long-term multifamily property
Investors looking to refinance an existing multifamily property
Investors looking to cash out refinance an existing multifamily property
Temporary Multifamily Financing Options
Temporary (short-term) multifamily loans, such as hard money loans, are mortgages with terms between six and 36 months. Monthly payments are typically interest-only with fixed rates between 4 percent to 12 percent or more. Temporary multifamily financing options are used to purchase, renovate, season or sell a multifamily property before refinancing to a permanent mortgage at a later date.
Theses temporary multifamily loans are right for:
Investors who need to season a multifamily property
Investors who need to increase the occupancy rate of a multifamily property
Investors who may want to renovate a multifamily property
Investors who don’t meet the stricter qualifications of a permanent multifamily loan
Investors who need to compete with all-cash buyers
Overall, investors of multifamily properties should be willing to be active in the management of the property. They should have at least nine months cash reserves not only to cover monthly loan payments through vacancy periods but also to cover unforeseen repairs as needed.
What Qualifies as a Multifamily Home?
A multifamily property is generally a residential property with two to four separate units. This is how lenders define a multifamily property. However, the FHA considers a multifamily property one that has five or more units.
Multifamily loans are used by investors to finance multifamily properties between two and five or more units. These properties can include condos, town homes, duplexes, apartment buildings and more. However, there are many different multifamily financing options available and it’s important to understand the best ways to invest in real estate.