Purchasing a multi family property can be a great investment. It allows you to live in one unit while renting out the others providing rental income. However, financing a multi family home purchase requires more complex lending than a single family residence. This guide will explain the different types of multi family loans available and key steps for securing financing.
Types of Loans for Multi Family Properties
There are several loan programs designed for financing multi family dwellings
Conventional Loans
- Available from private lenders like banks and credit unions
- Typically require 15-30% down payment
- Interest rates may be lower than government programs
- Allow owner-occupancy or pure investment properties
- Loan amounts up to $1.8 million for 2-4 units
FHA Loans
- Insured by Federal Housing Administration
- Allow 3.5% minimum down payment
- Owner occupancy required in 1 unit for up to 4 units
- Easier to qualify based on credit, income, debt ratios
- Access renovation financing through 203(k) program
Portfolio Loans
- Offered by private lenders like banks and insurance companies
- Loan amounts and terms are flexible
- Interest rates range from 4-12%
- May require higher down payments around 25%
Bridge/Hard Money Loans
- From private lenders for short terms like 1-5 years
- Quick to close, but higher interest rates around 7-12%
- Loan amounts $1 million and up
- Used for purchases needing rehab
Steps to Getting a Multi Family Loan
Follow these key steps when seeking financing for a multi family property purchase:
Check Your Personal Finances
Lenders will evaluate your credit, income, assets, and liabilities to determine if you qualify. Be ready to provide:
- Credit reports and scores
- Tax returns, pay stubs, W-2s to confirm income
- Bank and investment account statements
- Details on current debts and assets
Choose the Right Loan Program
Consider which loan programs best suit your financial situation. Conventional loans have stricter requirements, while FHA is more lenient.
Find an Experienced Lender
A lender familiar with multi family lending can guide you through the complex process. Search online or ask people you know for referrals.
Evaluate the Property
The lender will assess the property’s value, condition, marketability, and cash flow. Be prepared to provide:
- Address, square footage, number of units
- Financials if already rented
- Renovation estimates if needed
Complete the Loan Application
You’ll need to complete a full application with personal and financial details. Be responsive to requests for additional documents.
Get Appraisals and Inspections
The lender will arrange for professional appraisals. FHA loans require a special “1025” appraisal including fair rental estimates. Inspections assess property condition.
Verify All Data
Lenders will verify your credit, income, employment, assets, and all details about the property. Ensure all information provided is accurate.
Lock in an Interest Rate
Rates fluctuate daily. Once your loan is approved, lock in a rate so it doesn’t change between approval and closing.
Close on Time
Work closely with your real estate agent and lender to ensure all parties have necessary documentation. Sign final papers to secure your financing and take ownership.
Tips for Securing Multi Family Financing More Easily
- Improve your credit score and reduce debts before applying
- Put at least 10-20% down to lower payments and interest rates
- Seek loans below 80% of the property’s value
- Choose adjustable rate mortgages (ARMs) for lower initial rates
- Pay for points to buy down the interest rate
- Add a co-signer with better credit to strengthen your application
- Document all sources of income you’ll use to repay the loan
- Select a property likely to appreciate and in a stable rental market
Purchasing a multi family investment property can be rewarding but financing it is more complicated than a single family home. By understanding loan options, improving your finances, finding the right lender, and providing complete documentation, you can more easily secure a mortgage or commercial loan for your multi family purchase. Partnering with an experienced lender and real estate agent can also smooth the financing process. With the right preparation, you can become a successful multi family property owner.
Fannie Mae Loans for Multifamily Properties
Fannie Mae is a government-backed entity that buys mortgages and could provide financing in some cases. Fannie Mae offers a wide selection of specialized loan programs, but there are two loan programs in particular that are popular choices for multifamily properties.
First, there is the standard multifamily loan program, which has a minimum loan amount of $750,000. With this option, it is possible to leverage up to 80% of your Loan to Value allowance.
You will, of course, need to meet the program criteria to qualify for this loan. These loans will usually be five to 30-year fixed-rate loans with 30 years amortization. Nonrecourse availability is written into the agreement. The program isn’t strict with debt-to-income ratio requirements, and you will need to have a minimum credit score of 680 and a minimum net worth that’s the same as the amount requested in the loan.
There is also a Fannie Mae small loan program that could be used instead. This can help to lower the fees for buying and refinancing multifamily properties. The loan amount ranges from $750,000 to $3 million, and it is up to $5 million in certain large cities.
This option has some incentives that could make it a good option for certain investors, as well. Up to 80% of the loan to value is available to you, and there are not any tax returns required. The loan is assumable for a 1% fee, which can provide some safety, and it amortizes in 30 years.
These loans can work well for some but not for others. It will all depend on how large of a property you want to buy. Those who are looking for apartment complexes and who need a commercial property will find that they could be useful.
The Most Common Ways to Finance a Multifamily Property
Multifamily properties are a fantastic option for real estate investors. They tend to be low risk and have the potential to bring in a nice, predictable income. However, those who have never invested in one of these types of properties before might be wondering just how they might qualify for financing. After all, these are large properties, and this often means that they are going to be expensive. You will need to have a better understanding of multifamily property financing.
How to Finance Your First Multi Family Property
What is a multifamily loan?
A multifamily loan is a type of financing used for the purchase or renovation of multifamily properties. These loans are typically obtained by investors looking to buy and hold these types of assets. Multifamily loans can be sourced from various lenders such as banks, credit unions, and private lenders.
How do I apply for a multifamily loan?
To apply for a multifamily loan, start by searching online for a lender that offers multifamily financing or by asking for recommendations from friends, family, and business connections. When interviewing lenders, ask about their experience with multifamily loans.
How can I finance a multifamily property?
There are a couple of different options for financing a multifamily property. One option is to use a conventional mortgage, which allows the borrower to finance both single-family multiunit homes up to 4 units and multifamily properties with 5 units or more.
Can you get a loan to buy a multifamily property?
You can get a bank loan to buy, refinance, or construct a multifamily property from lenders. However, the terms can be very stringent.