4 Types of Multifamily Financing: Rates, Terms & Qualifications
Tricia has nearly two decades of experience in commercial and federal government lending. Her expertise is highlighted throughout small business loan content on Fit Small Business.
Andrew has over a decade of experience in finance and mortgage lending. He shares his expertise in Fit Small Business’s financing content.
This article is part of a larger series on Business Financing.
Multifamily financing is used by real estate investors to purchase or refinance properties with more than one unit. Properties typically include residential homes with 2 to 4 units or apartment complexes with more than 5 units. Rates can be as low as 5.25% with terms up to 35 years.
Specific terms and eligibility criteria will vary based on the type of multifamily financing you choose. Your business goals and qualification requirements will determine the type of financing best suited for you.
The four main types of multifamily loans include:
- Conventional multifamily mortgage: Best for investors looking to finance two- to four-unit residential homes in good condition.
- Government-backed multifamily mortgage: Best for obtaining owner-occupied properties with two to four units or apartment complexes with five or more units.
- Short-term multifamily loan: Best for fix-and-flip investors or for getting funding to perform repairs on property.
- Portfolio/private multifamily loan: Best for investors needing more flexible qualification requirements.
Multifamily Loans at a Glance
Loan Type | Maximum Loan Amounts | Typical Interest Rates | Loan Terms | Our Recommended Provider |
|---|---|---|---|---|
Conventional | $2,095,200 | 6.25% to 8% | Up to 30 years | |
Government-backed | $5 million+ | 5.25% and up | Up to 35 years | |
Short-term | $50 million+ | 7% and up | 3 months to 3 years | |
Portfolio/private | $100 million+ | 6.5% and up | Up to 30 years |
Conventional Multifamily Mortgages
Rates & Terms | |
Loan Amount |
|
Interest Rates | 6.25% to 8% |
Loan Term | Typically 10 to 30 years |
Maximum Loan to Value (LTV) | 80% |
Fees & Closing Costs | 2% to 5% of the loan amount |
Time to Funding | 30 to 60 days |
Eligible Property Types | 2- to 4-unit properties with no health/safety hazards |
Qualifications | |
Minimum Credit Score | Varies, but 680 is recommended |
Time in Business or Other Required Experience | None |
Minimum Debt Service Coverage Ratio (DSCR) | 1.25x |
Assets Required | Varies, but 12-month reserves is recommended |
Who Should Consider a Conventional Multifamily Mortgage
A conventional multifamily mortgage can be a good choice for investors looking to purchase or refinance two- to four-unit residential properties. However, qualification requirements tend to be strict as these loans must often adhere 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.
Eligible properties must be in good condition requiring no major repairs and have no health or safety hazards. Your income will also be compared to the amount of debt you’re carrying, and many companies will require a DSCR of at least 1.25x, although it’s possible this can vary from lender to lender. The same is true for the required credit score, although 680 is a recommended minimum to improve your chances of getting approved.
Loan amounts follow the limits set forth by the Federal Housing Finance Agency, and you can visit the Fannie Mae website to view the current amounts. Limits are determined by a variety of factors, such as property type and location.
If you’re considering a conventional multifamily mortgage, we also 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 the US Bank website to learn more.
Government-backed Multifamily Loans
Rates & Terms | |
Loan Amount | Up to $5 million+ |
Interest Rates | 5.25% and up |
Loan Term | 5 to 35 years |
Maximum LTV | Varies |
Fees & Closing Costs | 2% to 5% of the loan amount |
Time to Funding | 30 to 90+ days |
Eligible Property Types | 5+ units |
Qualifications | |
Minimum Credit Score | 650+ |
Time in Business or Other Required Experience | None |
Minimum DSCR | Varies, but 1.25x is recommended |
Assets Required | 3 to 9 months reserves |
Who Should Consider Government-backed Multifamily Loans
These loans are backed by a government agency, such as the Federal Housing Administration (FHA), Department of Housing and Urban Development (HUD), or the Department of Veterans Affairs (VA). Loans can be used to finance two- to four-unit properties where you intend on occupying at least one of the units. We’ve also recognized this as one of the best apartment loan options for complexes or properties with five or more units.
A big benefit of government loans is that they can offer more competitive rates and have easier qualification requirements. One example of this can be seen in our guide on FHA multifamily loans, showing that you can have a debt-to-income ratio as high as 67%. Another benefit 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.
One of the downsides with this type of financing, however, is that there can be more restrictive eligibility criteria. VA loans, for instance, typically require you to have some form of military service to get a loan. Loan terms can also be more difficult to understand.
For example, 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. Nonrecourse loans allow a lender to seize property in the event you default, with the restriction that it’s limited to collateral pledged for the loan. Recourse loans, on the other hand, 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.
You can use our guide on the best commercial real estate (CRE) loan rates to better understand how other factors can impact the rate you get. You can also head over to Commercial Real Estate Company of America, a provider that lists its lowest available rates on its website, making it easy to figure out if you qualified for the best advertised pricing.
Visit Commercial Real Estate Finance Company of America
Short-term Multifamily Loans
Rates & Terms | |
Loan Amount | Up to $50 million+ |
Interest Rates | 7% and up |
Loan Term | 3 months to 3 years |
Maximum LTV | 75% to 90% |
Fees & Closing Costs | 3% to 6% of loan amount |
Time to Funding | 3 to 10 days |
Eligible Property Types | 2+ units (properties in need of repairs can be eligible) |
Qualifications | |
Minimum Credit Score | 620+ |
Time in Business or Other Required Experience | Varies, but some providers require prior flipping experience |
Minimum DSCR | 1.25x |
Assets Required | None |
Who Should Consider Short-term Multifamily Loans
Short-term multifamily loans can be a good choice for fix-and-flip or fix-and-hold investors looking to finance property in poor condition. Loans must typically be paid off in under three years but have easy qualification requirements. As a result, these loans can also be considered by borrowers who are unable to meet the qualification requirements for other loans.
Fix-and-flip investors often use this type of loan to fund repairs and upgrades to a property. Once completed, the property is then resold for a profit. Fix-and-hold investors, on the other hand, will use this type of loan to finance a property that’s in need of repairs. Once finished, the improved property condition makes it eligible for other types of loans, at which point it’s 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.
Kiavi is a lender we recommend for short-term loans. It offers fast funding in as little as 10 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.
Portfolio Multifamily Loans
Rates & Terms | |
Loan Amount | Up to $100 million+ |
Interest Rates | 6.5% and up |
Loan Term | 2 to 30 years |
Maximum LTV | 75% to 95% |
Fees & Closing Costs | 3% to 7% of loan amount |
Time to Funding | 10 to 45 days |
Eligible Property Types | 2+ units |
Qualifications | |
Minimum Credit Score | 600+ |
Time in Business or Other Required Experience | Varies, but 12 months’ experience is recommended |
Minimum DSCR | 1.25x |
Assets Required | Varies, but 12 months reserves is recommended |
Who Should Consider Portfolio Multifamily Loans
Portfolio loans are retained by the lender and can have some of the most flexible qualification requirements. Since these loans don’t have to conform to secondary market guidelines, it gives the provider the ability to create its own set of requirements and issue policy exceptions if needed.
These loans can be a good choice if you’re having difficulty getting approved for other types of financing. While lenders may still review your credit and income, the requirements will usually be easier to meet. 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. But if you’re considering this type of financing, we recommend Baselane. You can get a free, no-obligation quote online in under 60 seconds with competitive rates and easy documentation requirements.
Visit Baselane (powered by Lendency)
How To Get Multifamily Financing
To get multifamily financing, you should understand what options you have based on your goals and qualifications. Once you find a lender, you’ll need to provide certain documentation.
For help on how to choose the right type of loan and how to best prepare for the loan process, you can read our guide on how to get a small business loan.
The best loan for you will be one that you can qualify for and that helps you meet your goals and financial needs. Once you find the right type, determine what the qualification requirements are and whether you’re eligible. Common requirements include:
- Credit score: Although some providers issue loans with credit scores as low as 500, you’ll have a much better chance with a score of 680 and above. If your score is lower, you may want to find providers that issue loans specifically for bad credit.
- Time in business: If you have been in business for less than two years, most lenders will consider your company a startup. Not all lenders issue loans to startup companies, so you’ll want to check and see if this is an option for the type of loan you’re looking for.
- DSCR: DSCR is calculated as your net operating income divided by your current year’s obligations. It’s 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. Typically, you’ll find the best rates and loan terms from providers that require a larger down payment.
Your options for lenders include banks, credit unions, online lenders, and loan brokers. Each has its own set of pros and cons:
- Banks: Banks often have a wide range of loan types. However, qualification criterion tends 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, however, 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.
- 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 a lender and determined that you meet the eligibility criteria for the loan you’re looking for, you can submit a formal loan application. As part of the application process, you’ll be asked to provide supporting documentation. The lender will review these documents to confirm your eligibility and determine what loan terms you can get.
The exact list of required documents will vary based on the loan, the lender you choose, as well as your specific circumstances. Commonly requested items include tax returns, bank statements, and other financial statements, such as a balance sheet and profit and loss (P&L) statement.
Bottom Line
Multifamily financing allows you to purchase properties with two or more units. This can include multifamily residential homes, as well as more complex properties, such as apartments. You can choose from different types of multifamily financing depending on your qualifications and your business needs and goals. Multifamily loans can be complex, so shopping rates with multiple lenders will help you get the loan best suited for your situation.
