How to Get Multi Family Building Loans to Grow Your Real Estate Portfolio

Buying and financing multi family properties like apartment buildings can be a great way to expand your real estate investing portfolio. Whether you’re looking to house multiple generations of family members under one roof or want to generate rental income, multi family building loans allow you to finance the purchase or refinance of properties with 5 or more units.

As an active real estate investor myself, I’ve closed on several multi family and apartment building loans over the years. While the process can seem overwhelming initially, it’s very straightforward once you understand the different loan options available. In this article, I’ll walk through everything you need to know about obtaining financing for a multi family residential building purchase.

Overview of Multi Family Building Loan Options

When looking to finance the purchase of a multi family dwelling, you essentially have two options – FHA loans or conventional loans from banks/mortgage lenders Let’s look at both

FHA Multi Family Loans

The Federal Housing Administration’s multifamily mortgage loan program allows borrowers to purchase a property with 5 or more units. This is ideal if you’re looking to owner-occupy one unit and rent the others out.

Some benefits of FHA multi family loans include

• Low down payment requirements – often as little as 10%
• Lower interest rates compared to conventional loans
• More lenient credit score and debt-to-income requirements
• Access to streamlined “limited” 203(k) renovation loans

The FHA will insure the mortgage, protecting lenders and allowing for more favorable loan terms. However, there are some downsides to be aware of:

• Loan limits max out at around $25 million
• Properties must be at least 3 years old
• Not available for strictly investment properties

So FHA multi family loans are great if you need a low down payment and flexible qualifying. But for larger or newer properties, conventional loans may be a better fit.

Conventional Multi Family Loans

Beyond FHA, you can also opt for a conventional multi family mortgage from banks and private lenders. With this route, you’ll generally need a larger down payment in the 15-30% range. However, you get access to better rates/terms and higher loan amounts.

Conventional loans can be used to purchase 5+ unit multi family dwellings as either owner-occupied or strictly investment properties. No occupancy requirement needed.

Some top conventional multi family lenders include big banks like Chase and Wells Fargo. But also consider local/regional banks, credit unions and private/portfolio lenders.

The tradeoff is you may need to personally guarantee the mortgage and have a larger down payment on hand. But you open up many more options beyond FHA.

Multi Family Loan Underwriting Criteria

Whether going with an FHA-insured or conventional multi family mortgage, lenders will scrutinize these key factors when underwriting and approving your loan:

Property Income/Cash Flow – Can the property’s rents reliably cover the monthly mortgage payment and other expenses? Underwriters will look at current rent rolls, occupancy, market rates, etc.

Borrower Credit Score – Most lenders require a minimum credit score in the 620 range, but the higher your score, the better.

Debt-to-Income Ratio – Your total monthly debts divided by gross monthly income. The “backend” DTI is capped around 45% with FHA multifamily.

Down Payment – FHA needs around 10-15% down. Conventional loans typically want 25-30%+ down.

Asset Reserves – Expect to show 6-12+ months of mortgage payments in liquid reserves.

Experience – Having experience owning/managing other investment properties helps. No experience may require a larger down payment.

Property Appraisal – The lender will assess the value and condition of the property to ensure it’s adequate collateral.

Meeting these criteria indicates you can repay the loan. It also protects lenders in case they must foreclose and resell the property.

Steps to Getting Approved for a Multi Family Building Loan

Now that you understand the types of multi family loans and qualifying criteria, let’s walk through the typical process to get approved and close on your purchase:

1. Prequalification – Speak with a few lenders to get prequalified and understand loan amount/terms you can likely qualify for.

2. Property Search – Once prequalified, start searching for multi family properties in your target price range and area.

3. Make an Offer – When you find the right property, submit an offer contingent on securing financing within 30-60 days.

4. Loan Application – Choose a lender to formally apply with. Be ready to submit personal financial docs, income/tax info, etc.

5. Processing & Underwriting – The lender will order appraisals, verify employment/income sources, pull credit reports, and underwrite the full loan.

6. Approval – If approved, you’ll receive a loan commitment letter detailing the final loan amount, rate, fees, and closing conditions.

7. Closing – The lender will schedule closing once all conditions are satisfied. Bring your down payment and be ready to sign loan documents.

8. Take Possession – After closing and funding, the property and keys are yours! Begin preparing units, marketing rentals, and managing your new investment.

While the process involves a lot of paperwork, an experienced lender will help guide you through each step. The key is being organized, allowing sufficient time, and working with a trustworthy partner.

Finding the Best Multi Family Building Loan

As a final tip, be sure to shop around with multiple lenders when looking for a multi family mortgage. Compare interest rates, fees, and overall charges to find the most affordable option. Also look for a lender that can close quickly and provide speedy approvals.

Working with a relationship-focused bank that specializes in multi family lending is ideal. They will understand your business goals, offer personalized guidance, and deliver solutions that set you up for long term success.