4 Types of Multifamily Financing: Rates, Terms & Qualifications
This article is part of a larger series on Business Financing.
Multifamily financing allows real estate investors to purchase or refinance small multiunit properties with two to four units and large apartment complexes with five or more units. Multifamily loans are good for both new and experienced investors and have interest rates as low as 2.625% with terms up to 35 years.
There are four types of multifamily financing:
- Conventional multifamily mortgage: Best for investors who want traditional multifamily financing for two to four units in good condition
- Government-backed multifamily mortgage: Best for owner-occupants of two- to four-unit properties or investors with five or more units
- Portfolio multifamily loan: Best for investors who want to finance multiple properties at once or cannot qualify for a conventional mortgage
- Short-term multifamily loan: Best for fix-and-flip investors who wants to purchase a distressed property quickly
Loan Type | Loan Amounts | Interest Rates | Term | Provider |
|---|---|---|---|---|
Conventional | Up to $1,867,275 | Up to $1,867,275 | 4.75% to 7.25% | |
Government-backed | $1 million to $6 million+ | 3.68% and up | Five to 35 years | |
Portfolio | $100,000 to $100 million+ | 2.625% and up | Two to 30 years | |
Short-term | $100,000 to $50 million+ | 4.95% and up | Six to 36 months |
If you’re looking for a multifamily bridge or term loan, or a rental portfolio loan, CoreVest is an excellent choice. CoreVest offers term loans from 18 to 24 months of between $2 million and $25 million and term loans and rental portfolios from five to 10 years up to or exceeding $100 million. Visit CoreVest’s website for more information.
1. Conventional Mortgage for Multifamily Properties
Conventional mortgages are offered by traditional banks and lending institutions with terms between 15 and 30 years. Conventional mortgages can finance a multifamily property between two and four units. They’re conforming mortgages that must meet the qualification and loan size requirements set forth by the Federal National Mortgage Association (Fannie Mae). Here are Fannie Mae’s loan limits for 2022.
Conventional mortgages can have either fixed or variable interest rates. While qualification requirements can be stringent, with a minimum credit score of 680 and up to 12 months cash reserves required, interest rates are usually competitive with other types of multifamily financing options.
Check with your bank to secure a conventional multifamily mortgage. Otherwise, a marketplace such as LendingTree is an excellent place to look for a conventional multifamily loan.
2. Government-backed Multifamily Financing
Government-backed loans follow guidelines from Fannie Mae, the Federal Home Loan Mortgage Company (Freddie Mac), or the Federal Housing Administration (FHA). The terms for each type of loan will be slightly different, but each has specific requirements that must be met.
While conforming loans must adhere to the loan limits listed in the section on conventional multifamily loans with two to four units, jumbo loans for properties with five or more units can exceed those limits and therefore are nonconforming.
When considering these loans, it’s important to see if the loan has a minimum occupancy requirement, whether they’re recourse or nonrecourse, and whether the loan is assumable or not assumable. These will vary depending on which loan program you choose, so be sure to know the exact terms required before moving forward.
FHA multifamily loans can go between 83.3% and 87% LTV on loans that start at $2 million. Terms on those loans can go up to 35 years, and loans insured by Housing and Urban Development (HUD) are nonrecourse. People looking to finance apartments under HUD/FHA 223(f) can do so without income and rent restrictions.
Government-backed commercial real estate loan rates can be either fixed or variable with multifamily loans. Some loans will be fully amortizing, some will have a portion of the loan as interest-only―usually up to 10 years―while others will have a balloon payment at the end.
The Commercial Real Estate Finance Company of America (CREFCOA) offers loans for all three programs. Visit CREFCOA’s website for more information or to get a quote.
3. Portfolio Loan
Portfolio loans are mortgages that are held by the mortgaging company and not sold on the secondary market to Fannie Mae or Freddie Mac. Small business owners get a portfolio loan when they cannot qualify for a traditional mortgage or when they want to finance multiple properties on the same mortgage loan.
Because these loans don’t have to comply with federal guidelines, lenders who hold portfolio loans can allow higher debt-to-income, loan-to-value, and loan size maximums. However, those higher values can also be accompanied by higher interest rates and fees. The larger loan amounts make portfolio loans a good choice for multifamily financing.
CoreVest is a good choice for portfolio loans. You can apply directly through CoreVest’s website or get questions answered through a chatbot. A toll-free number is also available for any questions. Check out CoreVest’s website for more information or to apply.
4. Short-term Multifamily Financing
Whether you decide to pursue a hard money loan or a commercial bridge loan, short-term multifamily financing can help you renovate, rehabilitate or expand an existing property. Hard money loans are often used by borrowers that cannot obtain permanent financing due to credit issues or properties in disrepair. Bridge loans provide funds to purchase a property with additional funds for the property’s rehabilitation.
In the case of both short-term loan types, maximum terms are usually three years or less. At that point, the property can be refinanced into a permanent loan or potentially sold for profit. Bridge loans typically have more stringent qualifications, but they have lower interest rates. Hard money loans are easier to qualify for, but they often come with higher rates and fees. For that reason, hard money loans are often considered last resort mortgage financing.
Kiavi is our choice for the best hard money lender due to fast funding times, no hidden fees in closing costs, and no personal income qualifier. Kiavi also offers bridge loans of up to $3 million for up to 24 months. Kiavi will lend up to 90% of the purchase price and up to 75% of the after-repair value. Visit Kiavi’s website for more information.
How to Apply for a Multifamily Loan
The application process for getting a multifamily loan will be similar to the process of getting any small business loan. There will be a few differences specific to any investment property financing. You’ll need to submit management agreements, current lease agreements, insurance policy declaration pages, and tax bills. Some other documents you may need to provide include:
- Property details: Address, photos, number of units, age, and any upgrades
- Property financials: Current operating statement, rent roll, utilities, and copies of any service contracts on the property
- Personal financials: Personal financial statements with proof of income and reserves that may be required for the loan
Bottom Line
Multifamily loans allow you to finance properties with two or more units, including condos, townhomes, duplexes, apartment buildings, and a portfolio of properties. There are many ways to finance these properties, and different types of financing work better for different types of commercial properties.
These deals are often complex and time-consuming. It’s essential to include your financial and legal experts in any multifamily financing deal. This will help you protect your interests and the business’s interests and allow you to pursue financing that works best for your potential project.
