Multifamily financing can be used to purchase, refinance, rehabilitate, or construct a multifamily property. This generally includes properties that include residential units, whether it be homes with multiple units or apartment complexes. Rates, terms, and qualification criteria will vary depending on the lender and the type of multifamily financing needed for your real estate investment.
The four main types of multifamily loans are:
- Conventional multifamily loan: This is a standard real estate mortgage that’s suitable for investors interested in financing a multifamily property with 2 to 4 residential units.
- Government-backed multifamily loan: It is a government-insured mortgage best suited for owner-occupied multifamily houses or apartment complexes.
- Short-term multifamily loan: This provides quick access to financing to fix-and-flip investors to purchase and repair properties.
- Portfolio multifamily loan: Also known as a private loan, it can provide quick financing and flexible qualification requirements.
Types of Multifamily Loans
Loan Type | Maximum Loan Amounts | Typical Interest Rates | Loan Terms | Our Recommended Lender |
|---|---|---|---|---|
Conventional | $2,211,060 | 6.25% to 8% | Up to 30 years | |
Government-backed | $5 million+ | 5% and up | Up to 35 years | |
Short-term | $50 million+ | 7% and up | Up to 3 years | |
Portfolio/Private | $10 million+ | 6.5% and up | Up to 30 years |
1. Conventional Multifamily Mortgages
Who Should Consider a Conventional Multifamily Mortgage
Conventional multifamily mortgages can be utilized by a variety of investors looking to make a real estate investment. Generally, they can be used to purchase or refinance properties that have 2-4 residential units.
While this is a common type of financing, qualification requirements tend to be more strict due to various criteria set forth by government-sponsored enterprises like the Federal National Mortgage Association (Fannie Mae). These requirements cover several categories pertaining to the property, your credit, and your income.
There are limits set by the Federal Housing Finance Agency with regard to the maximum loan amounts available, depending on the property type. Keep in mind, eligible properties will need to be in good condition and pose no health or safety hazards.
If you’re considering a conventional multifamily mortgage, we recommend heading over to our guide on investment property financing. We go over how to approach not only getting a loan but also provide tips on how to find a good lender.
U.S. Bank, for instance, has strict qualification requirements. However, it offers many different types of loans. Eligible borrowers can also get some of the most competitive rates available along with flexible repayment terms. Check out its website to learn more.
Pros & Cons of Conventional Multifamily Mortgages
| PROS | CONS |
|---|---|
| Can be used for a variety of purposes, including acquisition, rehabilitation, refinancing, or construction | Can have strict qualification requirements depending on the lender |
| Can offer competitive rates and terms | Can be subject to maximum loan amounts |
| Can have plenty of lender options since it’s a popular loan type | Can require that the property be in a specific condition to be considered eligible |
2. Government-backed Multifamily Loans
Who Should Consider Government-backed Multifamily Loans
These loans are backed by a government agency, such as the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD), or the Department of Veterans Affairs (VA). They can be used to finance 2- to 4-unit properties or complexes with 5 or more units. Most government-backed loans that are used to finance real estate have owner occupancy stipulations―meaning you’ll need to reside within the building as a condition of your investment.
A big benefit of government loans is that they can offer more competitive rates and have easier qualification requirements. Another highlight is that since these loans can be used to obtain more expensive properties, funding amounts can exceed the loan limits you see on conventional conforming mortgages.
Government-backed multifamily loans can be a mix of recourse or nonrecourse financing. This can impact your loan terms and be a significant factor if you end up defaulting on your loan.
- Recourse loans give a creditor the ability to pursue additional assets. As a result, recourse loans tend to have lower rates and fees as they represent a lower risk to the lender.
- Nonrecourse loans allow a lender to seize property in the event you default, with the restriction that it is limited to collateral pledged for the loan.
You can head over to Commercial Real Estate Company of America, a provider that lists the lowest available rates on its website, making it easy to figure out if you qualify for the best-advertised pricing.
Visit Commercial Real Estate Company of America
- Reference our guide on the FHA multifamily loan. We’ve also recognized this as one of the best apartment building financing options for complexes or properties with five or more units.
- Read our article on the best commercial real estate loan rates to better understand how other factors can impact the rate you get from a lender.
Pros & Cons of Government-backed Multifamily Loans
| PROS | CONS |
|---|---|
| Can have more favorable rates and terms due to being government-backed | Can have strict eligibility and compliance requirements to get a loan |
| Can be easier for businesses with limited resources to qualify for | Can have other requirements such as your place of residence, as you may be ineligible if you don’t plan on residing within the financed property |
| Can be used to finance a variety of investment opportunities, such as purchasing, refinancing, or construction. | Can have a lengthier closing process in comparison to other loan types |
3. Short-term Multifamily Loans
Who Should Consider Short-term Multifamily Loans
Short-term multifamily loans provide quick access to funds and are most commonly used by fix-and-flip or fix-and-hold investors for their real estate investments. However, they can also be a last-resort financing option for borrowers who are ineligible for other types of traditional financing.
Generally, funds are used to purchase and renovate a dilapidated property. Once completed, the property is then resold for a profit, allowing the borrower to pay off the loan quickly. Fix-and-hold investors, on the other hand, will use this type of loan to finance a property that needs repairs. Once finished, the improved property condition makes it eligible for other types of loans, at which point it is replaced with a more permanent source of financing.
Commercial bridge loans and hard money loans are common types of short-term financing. Between the two, bridge loans tend to have lower interest rates but have more strict qualification requirements. Hard money loans tend to be easier to get but carry higher rates and fees. Due to their short-term nature, they’re usually more expensive than traditional financing options. However, they are generally more accessible and can bridge the gap for a variety of real estate investors.
Kiavi is a lender we recommend for short-term loans. It offers fast funding in as little as 7 days along with offering competitive rates. First-time investors are eligible for financing, with more experienced borrowers eligible for lower rates and access to a dedicated account manager.
Pros & Cons of Short-term Multifamily Loans
| PROS | CONS |
|---|---|
| Can have more flexible qualification requirements in comparison to traditional financing options | Can have higher rates and fees than other multifamily loan types |
| Can offer quicker approval and funding speeds | Can be more difficult to find a participating lender that accepts your qualifications |
| Can repay the loan with an interest-only payment schedule | Is unideal for permanent financing unless the loan is refinanced |
4. Portfolio Multifamily Loans
Who Should Consider Portfolio Multifamily Loans
These are loans extended by lenders who keep the mortgage on their own books. For borrowers who might not meet eligibility requirements set by traditional lending institutions, this financing option is more flexible since they don’t have to conform to secondary market guidelines. Instead, the lender can create its own set of requirements and issue policy exceptions if needed.
While lenders may still review your credit and income, you’re not bound to the same qualifications required of traditional mortgages. Even if you don’t meet some of the requirements, lenders are more willing to issue policy exceptions to get you approved if you have sufficient compensating factors.
Since these loans tend to be easier to get, rates and fees can be high in return. But if you’re considering this type of financing, we recommend our partner RCN Capital. Both short- and long-term financing options are available, and you can submit a quick and easy application request through its website.
Pros & Cons of Portfolio Multifamily Loans
| PROS | CONS |
|---|---|
| Can offer more flexible qualification criteria including credit score, income, and assets | Can have higher interest rates and closing costs than other loan types |
| Can provide larger loan amounts and customizable options | Can be difficult to find a participating lender that suits your business needs |
| Can be less strict about the current condition of the financed property | Can come with more risk since they aren’t regulated the same as traditional loans |
How to Get Multifamily Financing
You should determine your investment goals when considering what type of multifamily financing is best for you. You’ll also need to understand which financing options you qualify for and can afford. With this in mind, you can find a lender to facilitate a loan, and prepare accordingly.
Consider what kind of property you’d like to invest in and what your investment goals are before proceeding. Once you’ve found the loan type best suited to your goals, determine what qualifications are required to be considered eligible.
Consider these common qualification criteria:
- Credit score: Lenders will have varying credit score requirements depending on the loan type needed. That being said, some will accept scores as low as 500, whereas others may request a score of 680 or higher. The higher your score, the better the chances of approval. If your score is lower, you may want to find lenders that specifically issue loans for bad credit.
- Time in business: Some loans may have time in business requirements to demonstrate your investment experience. This is common for fix-and-flip investments, as the lender wants to mitigate the risk of default on the loan and may not lend to inexperienced investors.
- DSCR: DSCR is calculated as your net operating income divided by your current year’s obligations. It is one method to measure your company’s ability to pay its debts based on your cash flow.
- Down payment: Down payment requirements can range from 0% to as much as 25% or more. While not necessary for all multifamily loans, you’ll typically find the best rates and loan terms from providers that require a larger down payment.
Multifamily loans can be issued by a variety of lenders―including traditional banks, credit unions, online lenders, and loan brokers. Depending on the type of loan you need, here are the types of lenders commonly available:
- Banks: Banks often have a wide range of loan types. However, qualification criteria tend to be strict with little to no flexibility for policy exceptions. In addition to lending products, you can view our list of the best banks for real estate investors for additional services like expense management systems and rent collection.
- Credit unions: Credit unions are not-for-profit organizations that can offer more competitive rates than banks. Depending on the credit union, you could also get more flexibility with regard to eligibility criteria. One downside, though, is that this type of lender may not have as many products as that of a bank. Our roundup of the top credit unions for small businesses may be a good place to start.
- Online lenders: This type of provider can offer some of the most competitive pricing. This is partly because it has fewer expenses for things like lease payments for physical branch locations. In exchange for lower rates, you’ll need to be comfortable conducting business primarily online. Check out our list of the best commercial real estate loans for some options.
- Loan brokers: Brokers have a network of lending partners and can use their expertise to match you with the loan best suited for your needs. Any of the providers in our guide to the leading business loan brokers can save you time from applying separately to multiple lenders.
Once you’ve found an applicable lender, confirm your eligibility and submit a formal loan application. You’ll need to supplement the application with various documentation, as requested by the lender.
The exact list of required documents will vary based on the loan, the lender you choose, and your specific circumstances. Commonly requested items include tax returns, bank statements, and other financial statements—such as a balance sheet and profit & loss statement.
Upon review of your application, the lender will confirm your eligibility. If approved, it will provide you with loan details inclusive of rates and terms.
Frequently Asked Questions (FAQs)
Since there are various types of multifamily financing, credit score requirements will vary. Lenders will have other determining factors when issuing a lending decision; however, you should aim for a score of at least 600 to be considered eligible for most forms of financing.
It depends on the type of loan you get. Typically, there are owner-occupancy requirements necessary for government-backed loans. As a condition of the investment, you must reside and conduct business at the property to be eligible for financing opportunities.
Qualification criteria will vary depending on the loan type and lender. Generally, credit score, experience, DSCR, and assets are taken into consideration. Keep in mind, the weight of such criteria can fluctuate, but it’s best if you meet the basic guidelines requested by the lender for greater chances of approval.
Bottom Line
Multifamily financing allows you to purchase properties with two or more units. This can include multifamily residential homes and more complex properties, such as apartments. Now that you know what multifamily financing is and the various loan types, you can determine which may apply to your real estate investments.
Whether you plan on purchasing, renovating, or refinancing a property, multifamily financing can support your investment needs. Be sure to shop around for a lender with rates and fees that fit your budget.
