4 Types of Multifamily Financing: Rates, Terms & Qualifications

Multifamily financing is used for the purchase or refinancing of smaller multi-unit properties with two to four units and large apartment buildings that have five or more units. Multifamily loans are great tools for both first-time real estate investors and seasoned professionals. Rates are generally between 4.5% to 12% with terms up to 35 years.

If you’re looking for a permanent multifamily loan for rental units, you can check out Visio Lending. They’re a national lender that can finance two to four unit buildings up to 80% loan-to-value (LTV) ratio. Terms are 30 years with fixed or variable competitive rates. Apply online today and get prequalified in a few minutes.

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4 Types of Multifamily Loans

1. Conventional Mortgage for Multifamily Properties

Conventional mortgages are permanent “conforming” loans offered by traditional banks and lending institutions. These mortgages have terms of 15 to 30 years and can finance multifamily properties between two and four units. Conventional mortgages are conforming because they adhere to Fannie Mae’s qualifications and maximum loan amounts. However, they aren’t backed by the federal government.

Conventional mortgages for multifamily homes are great long-term loans for rentals. They’re also ideal for investors who purchase a multi-unit property that has already been rehabbed as well as for investors who already have a banking relationship with a financial institution that offers conventional multifamily financing.

Conventional Mortgage Loan Amounts

One of the mortgage underwriting criteria for conventional multifamily financing is maximum loan limits. Fannie Mae increased their limits for 2019 to $484,350 for one-unit properties, but it’s important to remember these maximum loan amounts are regional and higher cost areas like Hawaii have higher maximum loan limits.

Conventional multifamily loan amounts include:

• Two-unit property: $620,200 to $930,300
• Three-unit property: $749,650 to $1,124,475
• Four-unit property: $931,600 to $1,397,400
• LTV: Up to 80%
• Down payment: 20% or more

An investor’s typical down payment with a conventional multifamily loan is 20% or more of the property’s purchase price. This is about the same as most other traditional residential property loans.

Conventional Loan Rates

The rates found on a conventional mortgage can be either fixed or variable. Fixed rates are fully amortized throughout the loan’s term, while variable rates typically reset after the first seven to 10 years. Variable interest rates are priced based on the stated six-month Intercontinental Exchange London Interbank Offered Rate (LIBOR) and capped at the starting interest rate plus 5% to 6%.

Conventional multifamily mortgage costs are generally:

• Rates: 4.875% to 7.00%
• Loan origination fees: 0% to 3%
• Closing costs: 2% to 5%

Conventional loans also typically require an appraisal fee of $500 or more as well as an application fee of $100 to $200, although the application fee will sometimes cover the appraisal. Loan origination fees and closing costs are typically taken directly out of the loan proceeds.

Multifamily Conventional Mortgage Terms

Conventional multifamily financing offers borrowers long-term loans for both fixed and variable loan products. These terms keep a borrower’s payment lower than a short-term hard money loan but can take longer to get qualified and fund. Multifamily adjustable rate mortgages (ARM) typically adjust after three, five, or seven years.

Conventional multifamily mortgage terms are generally:

• Term: 15 to 30 years
• Funding time: 30 to 45 days

Conventional Multifamily Mortgage Loan Requirements

Conventional multifamily loan underwriting will require borrowers to have fairly good credit, cash on hand, a rent roll history for the property, W2 tax forms, and full tax returns if the borrower is self-employed. The rates on these loans will be very competitive because the loans are conforming and often sold off by the lender. However, the underwriting is more intense and closing times are longer than a portfolio lender or hard money lender.

Conventional multifamily loan qualifications typically include:

• Units: Two to four
• Credit score: 680 or more (check your credit score for free here)
• DSCR: 1.25 or higher, which is the amount of cash flow available to cover debt payments
• Cash reserves: Six to 12 months

If you have a property with five or more units, you may also want to look into government-backed multifamily loans and multifamily portfolio loans. Conventional mortgages also typically don’t finance rehabs or renovations. If you anticipate performing work on a property you hope to finance, you may want to consider a rehab loan instead.

Where to Find a Conventional Financing

You can use an online marketplace like LendingTree to connect with multiple lenders and receive multiple offers at once. This can help you find the best rates, terms, and fees on your conventional mortgage quickly. Get started today and start connecting with lenders within minutes.

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2. Government-backed Multifamily Financing

Government-backed multifamily financing is multifamily loans sponsored by Fannie Mae and Freddie Mac that meet standards set by the Federal Housing Administration (FHA). There are more than five government-backed multifamily financing options, which can either finance properties with two to four units or properties with five or more units.

Government-backed multifamily loans are ideal for investors who want to live in one of their units and rent out the others. Investors who only have a small down payment can also benefit from government-backed multifamily loans. However, this type of financing can also be beneficial for investors who want to purchase a five-or-more-unit property with an FHA multifamily loan.

Government-backed Multifamily Financing Loan Amounts

Like conventional multifamily loans, government-backed multifamily loans also have lending limits. These FHA loan limits vary by area based on local median home values and type of property being financed.

Government-backed medium loan limit and down payments are generally:

• Two-unit home: From $403,125 to $930,300
• Three-unit home: From $487,250 to $1,124,475
• Four-unit home: From $605,525 to $1,397,400
• LTV: Up to 80%
• Down payment: 3.5% or more

“Many investors don’t realize that they can use an FHA loan with a down payment as low as 3.5% to purchase a multifamily residence. This low down payment generally gives you more buying power and lets you afford to purchase a nicer property in a better neighborhood. They can also add up to 75% of their monthly rental income to their earning when they’re ready to qualify to buy another property.”
— Odest T. Riley Jr., President, WLM Financial

Fannie Mae and Freddie Mac also have multifamily financing loans that can finance properties with five or more units. These government-backed loans also referred to as “small balance loans” or simply “multifamily loans.”

Government-backed loans are typically for the following amounts:

• Fannie Mae: $750,000 to $3 million
• Freddie Mac: $1 million to $6 million

The FHA offers multifamily loans for properties with five or more units. The minimum loan amount is $1 million, and there is no maximum amount. However, the FHA 223(f) apartment loan can finance up to 87% of a property’s LTV, meaning that the down payment would only be 13% or more of the purchase price plus closing costs.

Government-backed Multifamily Loan Rates

Government-backed multifamily loan rates are similar to conventional loan rates, and pricing is weighted heavily on credit score and loan to value. Most government-backed loans are priced with a 1% origination fee, but this is sometimes negotiable.

Government-backed multifamily loan rates typically include:

• Rate: 4.125% to 7%
• Loan origination fees: 0% to 1%
• Closing costs: 2% to 5%
• Prepayment penalty: 1%

Fannie Mae and Freddie Mac multifamily loans are available with fully amortized fixed rates or variable rates. Fixed rates are typically amortized over the term of the loan while variable interest rates adjust after three to 10 years, based on the current six-month LIBOR rate.

In contrast, FHA 223(f) loan costs are generally:

• Loan origination fees: 0% to 3%
• Closing costs: 2% to 5%
• FHA inspection fee: 1% or more
• Mortgage insurance premium: 1%
• Legal fees: $10,000 or more

Government-backed Multifamily Financing Terms

The terms for government-backed multifamily loans are:

• Term: Five to 35 years
• Funding time: 60 to 180 days

Both Fannie Mae and Freddie Mac multifamily loans have terms between five to 35 years. The time to approval and funding with these multifamily loans can be 60 to 90 days. For FHA-backed multifamily mortgages, the term can be as long as 35 years. Because there are more regulations and guidelines with FHA loans, the time to approval and funding is longer at 60 to 180 days.

Government-backed Multifamily Mortgage Loan Requirements

Government-backed multifamily financing is a little more lenient than conventional due to lower credit minimums, but you will still have strict requirements regarding income documentation, cash reserves, and credit history. Lenders will require borrowers to have equity and to have the units leased.

The qualifications for government-backed multifamily loans are:

• Units: Two or more
• Credit score: 650 to 680 or higher (check your credit score for free here),
• DSCR: 1.25 or higher, which is the amount of cash flow available to cover debt payments
• Occupancy: 85% to 90% or more
• Liquidity: At least nine months
• Occupancy: At least three months

FHA multifamily loan qualifications are:

• Units: Five or more
• Credit score: 650 or higher (check your credit score for free here),
• DSCR: 1.15 or higher
• Occupancy: 95% or higher
• Liquidity: At least nine months
• Occupancy: At least six months

Fannie Mae and Freddie Mac’s multifamily financing options together can fund the purchase of a multifamily property of two or more units. While conforming loans can finance properties with two to four units, nonconforming loans can finance properties of five or more units.

“Properties with FHA financing must be habitable ― manufactured and mobile homes do not qualify. Also, when living in one unit and renting out another, make sure to do your due diligence on your renters, require a recent credit report, check references, and have a real estate attorney review your lease agreements.”
― Tracy Searson Causbey, Vice President, The Bank of S.C.

Where to Find Government-backed Multifamily Financing

The Fannie Mae, Freddie Mac, and FHA multifamily financing options are originated and offered by government-approved mortgage lenders. For example, the Commercial Real Estate Finance Company of America offers all government-backed multifamily loan options. Landlords can start the application process by visiting its website and completing a preliminary application online.

Visit Commercial Real Estate Finance Company of America

3. Portfolio Loan

A portfolio loan for multifamily properties is a nonconforming loan used to purchase a multifamily property of two units or more. Portfolio loans for multifamily properties are permanent mortgages with terms between three and 30 years.

These types of multifamily loans are best for investors who need more flexible multifamily loan requirements. They’re also helpful for investors who want to finance multiple properties at once because they can finance four to ten properties simultaneously.

Portfolio Loan Amounts

Multifamily portfolio loan amount and down payment are generally:

• Minimum loan amount: $100,000 or more
• Maximum loan amount: Depends on the lender
• LTV: Up to 97%
• Down payment: 3% or more

Portfolio loans for multifamily financing aren’t required to meet Fannie Mae or the other government agencies’ requirements for maximum loan amounts and down payments. This means that portfolio loans are more flexible than conforming multifamily loans.

Portfolio Loan Rates

Portfolio lenders set their rates based on their investor’s risk requirements. While their loans are affected by the markets, portfolio lenders base their prices on different indices. Rates are often slightly higher than government-backed and conventional financing options but also offer more flexibility with underwriting.

Portfolio multifamily loan rates are generally:

• Rates: 5% to 6%
• Loan origination fees: 0% to 3%
• Closing costs: 2% to 5%
• Prepayment penalty: 1%

The costs involved with portfolio loans are typically charged directly against the loan. Like other types of multifamily financing, interest rates can be fixed or variable, with variable interest rates typically fixed for five to ten years before adjusting, and then adjusting again every six months thereafter based on the six-month LIBOR rate.

Portfolio Loan Terms

Multifamily portfolio terms are not set like conventional or government-backed loans. In most cases, the lender holds these loans in-house rather than selling them off, so lenders can set their own terms for each individual loan. These loans are underwritten and closed in about the same time as conventional financing.

Terms for multifamily portfolio loans are generally:

• Term: Three to 30 years
• Funding time: 30 to 45 days

Shorter terms can cause landlords to have to refinance their property sooner, and that can lead to greater costs from new origination fees.

Portfolio Loan Requirements

Portfolio lenders have the freedom to create their underwriting guidelines, which gives borrowers more financing options. Borrowers may be able to get higher LTVs and have lower credit requirements. Portfolio lenders, like hard money lenders, focus more on the underlying properties than individual borrowers.

Portfolio multifamily loan qualifications are generally:

• Units: Two to five or more
• Credit score: 600 or higher (check your credit score for free here),
• DSCR: 1.25 or higher
• Occupancy rate: 90% or higher
• Liquidity: Nine months or more
• Occupancy: Three months or more

Where to Find Portfolio Loans for Multifamily Financing

Remember that since portfolio loans are non-conforming loans, they’re offered by lenders of all shapes and sizes. Traditional banks, credit unions, and savings and loans as well as private lenders, can all provide portfolio loans.

Visio Lending offers multifamily portfolio loans for rental properties with two to four units. The national lender can finance up to 80% LTV. Terms are 30 years with fixed or variable rates that are competitive. Apply online and prequalify in minutes.

Visit Visio Lending

4. Short-term Multifamily Financing

Short-term multifamily financing is a nonpermanent multifamily loan option with terms that range from six to 36 months. These loans include both hard money loans and bridge loans with monthly payments that are usually interest-only.

Short-term multifamily financing loans are right for investors who want to season, renovate, or increase the occupancy a multi-unit property to meet the stricter requirements of a permanent multifamily loan. Furthermore, some investors use these nonpermanent options to buy a property and wait until they reach the personal qualifications necessary for better refinancing.

Short-term Multifamily Financing Loan Amounts

Short-term multifamily loan amounts and down payments generally include:

• Minimum loan amount: $100,000
• Maximum loan amount: Varies by lender
• LTV: Up to 90%
• Loan-to-cost (LTC) ratio: Up to 75%
• Down payment: 10% or more

The LTV ratio is based on a multi-unit property’s current fair market value and is used to finance properties in good condition. The LTC ratio, on the other hand, is based on the combined costs of purchasing and renovating a multifamily property and is used for properties in poor condition. Based on typical lender restrictions on these ratios, investors should expect to cover 10% or more of a property’s purchase price or 25% or more of a property’s purchase price plus renovation costs.

Short-term Multifamily Loan Rates

Short-term multifamily loan rates are like portfolio loans in that they vary by lender. Pricing is risk-based, meaning the better the transaction stability is for the lender, the better the pricing for you. Because hard money loans and bridge loans are typically short-term, the rates are higher than our previous three loan types, but their closing times are the fastest.

Rates on short-term multifamily loans typically include:

• Hard money loan rates: 7.5% to 12% or more
• Bridge loan rates: 5% to 12% or more
• Loan origination fees: 1% to 3%
• Exit fee: 1%
• Extension fee: 1%
• Prepayment penalty: 1%

The interest rates found on short-term multifamily financing options vary widely depending on the type of loan and the lender. These costs are typically taken out of the loan and not paid out-of-pocket.

Short-term Financing Terms

Short-term multifamily loans are intended to last less than three years, so most lenders want to know your exit strategy and will often offer you long-term financing take outs. These loans can be incredibly helpful for investors looking to purchase a duplex, renovate it, and then keep it as a rental. A hard money lender can help you purchase the property fast and then later refinance the loan long-term.

Short term multifamily financing terms are typically:

• Term: Six to 36 months
• Funding time: 10 to 45 days

The terms of a nonpermanent multifamily financing option are short — typically between six and 36 months. This means that investors will typically either flip the property or refinance with a permanent multifamily loan at the end of the term.

However, the time to approval and funding is also short, making it advantageous for investors who need to compete with all-cash buyers. For hard money loans, the typical time to funding is between 10 to 15 days, with bridge loans being funded within 15 to 45 days.

Short-term Multifamily Mortgage Loan Requirements

Most short-term multifamily lenders focus on investor equity in a project or the profitability of the property. These lenders typically have low minimum credit score requirements but high equity requirements. Be prepared to have all documents pertaining to the financials of the property ready if you decide to use short-term financing.

The qualifications of short-term multifamily financing are generally:

• Units: Two or more
• Credit score: 550 or higher (check your credit score for free here),
• Experience: Two or three past rehab projects or multifamily experience
• Subordinated debt: None

Bridge loans cover gaps that occur when buying and selling multi-unit properties. For instance, an investor may need a bridge loan while they wait for permanent financing or make substantial upgrades to a rental property. Bridge loans often require excellent credit and have higher interest rates, but they seldom have repayment penalties.

Typically bridge loan qualifications are:

• Units: Two or more
• Credit score: 640 or higher (check your credit score for free here),
• Experience: Two or three past rehab projects or multifamily experience
• Subordinated debt: None
• Interest reserve: Required for properties below 1.05 DSCR

“To receive the best leverage and financing it’s going to come down to their experience. We consider someone to be experienced when they have at least three documented real estate investment property sales, completed rehabs on rental properties or equivalent experience in the last three years and at least one year in the business of acquiring real estate for investment purposes.”
― Erica LaCentra, Director of Marketing, RCN Capital

Where to Find Short-term Multifamily Financing

Alternative lenders like RCN Capital offer ideal short-term financing options for multi-unit buildings, condominiums, townhomes, and multifamily apartments. Using RCN, you can close on financing fast. Visit their website to get pre-approved in just a few minutes.

Visit RCN Capital

How Multifamily Financing Works

Multifamily financing works for two types of properties. The first is a residential investment property with two to four units. The second is an apartment building with five or more units. This distinction between the types is important because the number of units dictates the types of multifamily financing options available.

For example, conventional mortgages can only finance residential income properties between two to four units. Government-sponsored loans and short-term financing options, on the other hand, can finance both residential income properties as well as apartment buildings with five or more units.

Permanent Multifamily Financing Options

Permanent multifamily mortgages have repayment terms of five to 35 years and have an LTV of up to 87%. Interest rates range between 4% to 6%, and rates can be fixed or variable. Permanent multifamily mortgages are the most common type of multifamily financing and account for 93% of outstanding multifamily loans.

Although permanent loans are generally longer-term, there are some shorter options. For example, government agencies offer loans that have terms between five to 10 years.

These multi-family loans are right when investors want to do certain things, such as:

• To pay off a multifamily loan within 10 years
• To get lower payments at the start of the loan
• To have an adjustable rate loan
• To renovate a multi-unit property during a five- to 10-year period

On the other hand, long-term permanent multifamily loans have terms between 10 to 35 years. Monthly payments are typically amortized during the entire term. What’s more, interest rates are typically fixed.

Long-term financing is best for investors who want things like:

• To purchase a long-term multi-unit property
• To refinance an existing multi-unit property
• To cash out refinance an existing multi-unit property

Temporary Financing Options

Temporary (short-term) multifamily loans like hard money loans are mortgages with terms between six and 36 months. Monthly payments are typically interest-only with fixed rates starting from between 4% and 12%. Temporary multifamily financing options are used to purchase, renovate, season, or sell a multi-unit property before refinancing to a permanent mortgage at a later date.

Temporary multifamily loans are ideal for things like:

• Seasoning a multi-unit property
• Increasing the occupancy rate of a multi-unit property
• Renovating a multi-unit property
• Getting financing if you don’t meet the stricter qualifications of a permanent multifamily loan
• Competing with all-cash buyers

Investors who want short-term financing for multifamily properties should plan to be active in the management of their property. They should have at least nine months of cash reserves to cover monthly loan payments through vacancy periods and unforeseen repairs.

How to Apply for a Multifamily Loan

Applying for a multifamily loan is a little different than purchasing your primary residence, so if this is your first rental property, you’ll notice the additional hoops to jump through. Lenders tend to want to know more about the property as a business and require extensive documentation for underwriting. Although each lender determines their individual requirements, there are common trends in the multifamily financing landscape.

When you’re ready to purchase or refinance a multi-unit property, you need to collect the financial documents related to the building. These typically include property management agreements, current lease agreements, insurance policy declaration pages, and tax bills. If you plan to hold title in a limited liability company (LLC) or other entity, be sure to have your employer identification number (EIN), organizational chart, and articles of incorporation ready.

Some other documents you could be required to provide to a multifamily lender include:

• Property details: Address, photos, number of units, age, and any upgrades
• Property financials: Current operating statement, rent roll, utilities, and copies of service contracts like landscaping, pool maintenance, and pest control
• Personal financials: Be prepared to bring your financial statement and each owner having more than 20% equity and bank statements for any qualifying reserves or down payment funds

If you want more information on how to prepare for applying for a loan, be sure to check out our detailed multifamily loan application checklist below.

Download Worksheet

Multifamily Financing Frequently Asked Questions (FAQs)

This guide breaks down four multifamily financing options and discusses the application process to prepare you for financing. These are some frequently asked questions we’ve encountered and answers that might give you further insights. If you don’t see your question below, be sure to post it on our Fit Small Business forum.

What qualifies as a multifamily home?

A multifamily property is generally a residential property with two to four separate units. This is how lenders define a multifamily property. However, the FHA considers a multifamily property one that has five or more units.

How do I finance a multifamily property with no money down?

Buying a multifamily home with no money down can be done, but it’s not common. Generally, multifamily mortgage loan requirements include a down payment. You could work with a partner, buy an owner-occupied duplex with a down payment gift, or ask the owner for seller financing with no money down.

Can you use an FHA loan to buy a duplex?

You can use an FHA loan when buying a multifamily home that is a duplex. This type of loan offers a down payment as low as 3.5%, but you’re required to be an owner-occupant so that you can live in one of the units and rent out the other unit.

What kind of loan can I get for an apartment building?

Finding a multifamily loan for an apartment building can be accomplished with a Fannie Mae loan including apartments, student housing, affordable housing, and assisted living. However, qualifying can be challenging as Fannie Mae requires very experienced borrowers with strong financial histories. Hard money lenders and portfolio lenders typically have more flexible guidelines.

What is the rent roll for multifamily properties?

The rent roll is a snapshot of the amount due from each tenant and the total rent received over the course of a year. It is considered a snapshot of rents due for the period as reflected in active leases. A rent roll will include a list of tenants, rental rates, and lease expiration dates.

Multifamily Loans Key Terminology

When you are shopping around for multifamily loans, there’s some terminology that you’ll want to be familiar with.

Some terms to help you interact with lenders, brokers, and other real estate professionals include:

• LTV: The loan amount divided by the value of the property
• Debt-to-income ratio (DTI): Your total monthly or annual debt payments divided by your income
• DSCR: The difference between your total monthly or annual debt payments and the revenue available to pay those debts like DTI, but for businesses and investment real estate
• PITI: Principal, interest, taxes, and insurance
• Occupancy rates: The percentage of your investment property that is currently rented
• Seasoning: A period of time you must meet occupancy requirements prior to obtaining financing
• Cash reserves: Cash that you must prove to have available to support you PITI ― just in case
• Fully amortized: A repayment schedule where regular payments will repay the entire loan by the end of the term
• Partially amortized: A repayment schedule where regular payments will leave an unpaid balance by the end of the term, resulting in a balloon payment or need to refinance
• Balloon mortgage: A mortgage that is partially amortized resulting in a large balance owed at the end of the repayment term
• ARM: A fully amortized mortgage with an interest rate that will adjust up and down according to market interest rates
• Freddie Mac: Nickname for the Federal Home Loan Mortgage Corporation; a government-owned corporation that operates in the secondary mortgage market by purchasing mortgage loans from lenders
• Fannie Mae: Nickname for the Federal National Mortgage Association, which is a government-sponsored enterprise; it purchases mortgages from banks and then sells them so banks can make more loans to borrowers

Bottom Line

Multifamily loans are used by investors to finance multifamily properties between two and five or more units. These properties can include condos, townhomes, duplexes, apartment buildings, and more. However, there are many different multifamily financing options available, and it’s important to understand the best ways to invest in real estate.

Visio Lending offers permanent multifamily loans for rental properties with two to four units. The national lender can finance up to 80% LTV. Terms are 30 years with competitive fixed or variable rates for prime borrowers. You can apply online and get prequalified in a few minutes.

Visit Visio Lending