Real estate investors use multifamily financing to purchase or refinance both smaller multiunit properties with two-to-four units and large apartment buildings with five or more units. Multifamily loans are great for both first-time 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 CoreVest. They’re a national lender that can finance one-to-four-unit buildings up to 75% loan-to-value (LTV). Terms are 30 years with fixed rates starting at 5%. Apply online today and a representative will contact you within 24 hours.
Types of Multifamily Loans Table of Contents
| Best For | |
|---|---|
Investors who want traditional multifamily financing for 2 to 4 units in good condition | |
Owner-occupant of 2 to 4 unit property or investor with 5+ units | |
| An investor who wants to finance multiple properties at once | |
| A fix-and-flip investor who wants to purchase a distressed property quickly | |
Last updated on 04/13/20 | |
1. Conventional Mortgage for Multifamily Properties
Conventional mortgages are permanent loans offered by traditional banks and lending institutions with terms of 15 to 30 years. They can be used to finance multifamily properties between two and four units. Conventional mortgages are conforming because they adhere to Fannie Mae’s qualifications and maximum loan amounts. Conventional mortgages for multifamily homes are great long-term loans for investment property and multiunit properties that have already been rehabbed.
Conventional Mortgage Loan Amounts
Two-unit Property Loan Amount | $620,200 to $930,300 |
Three-unit Property Loan Amount | $749,650 to $1,124,475 |
Four-unit Property Loan Amount | $931,600 to $1,397,400 |
Maximum Loan-to-Value (LTV) | 80% |
Minimum Down Payment | 20% |
Where to Find |
Adhering to maximum loan limits is one of the mortgage underwriting criteria for conventional multifamily financing. Fannie Mae increased its limits for 2020 to $510,400 for one-unit properties, but it’s important to remember these maximum loan amounts are regional and higher-cost areas like Hawaii have higher loan limits. A typical down payment with a conventional multifamily loan is 20% of the purchase price.
Conventional Loan Rates & Terms
Rates | 4.75% to 7.25% |
Terms | 15 to 30 years |
Loan Origination Fees | Up to 3% |
Closing Costs | 2% to 5% of amount borrowed |
Other Fees | Appraisal $500; application fee $100-$200 |
Funding Time | 30-45 days |
Conventional mortgage rates can be 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 Loan Requirements
Number of Allowable Units | 2 to 4 units |
Minimum Credit Score | 680 |
Minimum Debt Service Cover Ratio (DSCR) | 1.25 |
Cash Reserves | 6 to 12 months |
Conventional multifamily loan underwriting requires borrowers to have good credit, cash reserves, rent rolls for the property, and two years of tax returns. The rates on these loans are very competitive because the loans are conforming and often sold on the secondary market. The underwriting is more intense, and closing times are longer than a portfolio loan or hard money loan.
Properties with five or more units may be better for government-backed multifamily loans and multifamily portfolio loans. Conventional mortgages typically don’t finance properties over four units or rehabs or renovations. If you anticipate renovations on a property that you plan 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.
2. Government-backed Multifamily Financing
Government-backed multifamily financing is sponsored by Fannie Mae and Freddie Mac and meets 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 over five units. Government-backed multifamily loans are ideal for investors who want to live in one unit and rent the others.
Government-backed Multifamily Financing Loan Amounts
Two-unit Property Loan Amount | $424,800 to $980,325 |
Three-unit Property Loan Amount | $513,450 to $1,184,925 |
Four-unit Property Loan Amount | $638,100 to $1,472,550 |
Loan-to-Value (LTV) | Up to 80% |
Minimum Down Payment | 3.5% |
Where to Find |
Additionally, the FHA offers multifamily loans for properties with five or more units. The minimum loan amount is $1 million, and there is no maximum. The FHA 223(f) apartment loan can finance up to 87% of a property’s LTV. These FHA loan limits vary by area based on local median home values and type of property being financed.
Government-backed Multifamily Loan Rates & Terms
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. Most government-backed loans are priced with a 1% origination fee, but this is sometimes negotiable.
The FHA 223(f) loan program has its own fee structure.
Fannie Mae & Freddie Mac Rates & Terms
Rates | 4.125% to 7.5% |
Terms | 5 to 35 years |
Loan Origination Fees | Up to 1% of loan amount |
Closing Costs | 2% to 5% of amount borrowed |
Prepayment Penalty | 1% of loan balance |
Funding Time | 60 to 180 days |
FHA 223(f) Fees
Private Mortgage Insurance | 1% of Loan Balance |
|---|---|
Average Minimum Legal Fees | $10,000 |
Loan Origination Fees | Up to 3% of loan amount |
Closing Costs | 2% to 5% of amount borrowed |
Prepayment Penalty | 1% of loan balance |
Minimum FHA Inspection Fee | 1% |
Government-backed Multifamily Mortgage Loan Requirements
Government-backed multifamily financing is a little more lenient than a conventional loan due to lower credit minimums. However, you’ll face strict requirements regarding income documentation, cash reserves, and credit history. Lenders will require borrowers to have equity in the investment property and to have the units leased from three to six months, depending on the loan.
Fannie Mae & Freddie Mac Requirements
Minimum Units | 2 |
Minimum Credit Score | 650 |
Minimum DSCR | 1.25 |
Minimum Occupancy Rates | 85% to 90% |
Minimum Cash Reserves | 3 months |
Minimum Occupancy Time | 3 months |
FHA Multifamily Loan Requirements
Minimum Units | 5 |
|---|---|
Minimum Credit Score | 650 |
Minimum DSCR | 1.15 |
Minimum Occupancy Rates | 95% |
Minimum Cash Reserves | 9 months |
Minimum Occupancy Time | 6 months |
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 with a minimum of two units. Portfolio loans for multifamily properties are permanent mortgages with terms between three and 30 years. These multifamily loans are best for investors who need more flexible multifamily loan requirements or who want to finance multiple properties at once. With a portfolio loan, investors can finance four to 10 properties simultaneously.
Portfolio Loan Amounts
Minimum Loan Amount | $100,000 |
Maximum Loan Amount | Varies by lender |
Four-unit Property Loan Amount | $638,100 to $1,472,550 |
Loan-to-Value (LTV) | Up to 97% |
Minimum Down Payment | 3% |
Where to Find |
Portfolio Loan Rates & Terms
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 you’ll find there’s also more flexibility with underwriting.
Rates | 5% to 6% |
Terms | 3 to 30 years |
Loan Origination Fees | Up to 3% of loan amount |
Closing Costs | 2% to 5% of amount borrowed |
Prepayment Penalty | 1% of loan balance |
Funding Time | 30 to 45 days |
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 10 years before adjusting, and then adjusting again every six months thereafter based on the six-month LIBOR rate.
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 performance of the investment properties than individual borrower’s personal financial statements.
Minimum Units | 2 to 5 |
Minimum Credit Score | 600 |
Minimum DSCR | 1.25 |
Minimum Occupancy Rates | 90% |
Minimum Cash Reserves | 9 months |
Minimum Occupancy Time | 3 months |
Where to Find Portfolio Loans for Multifamily Financing
Remember that since portfolio loans are nonconforming 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.
CoreVest is our recommended portfolio lender and offers multifamily portfolio loans for rental properties with one to four units. It takes only a minute to fill out its online form and see what products are available to meet your portfolio needs.
4. Short-term Multifamily Financing
Short-term multifamily financing is a nonpermanent multifamily loan that includes both hard money loans and bridge loans with interest-only payments. Short-term multifamily financing loans are right for investors who want to season, renovate, or increase the occupancy of a multiunit property to meet the stricter requirements for transitioning to a permanent multifamily loan.
Minimum Loan Amount | $100,000 |
|---|---|
Maximum Loan Amount | Varies by lender |
Four-unit Property Loan Amount | $638,100 to $1,472,550 |
Loan-to-Value (LTV) | Up to 90% |
Loan-to-Cost (LTC) | Up to 75% |
Minimum Down Payment | 10% |
Where to Find |
The LTV ratio is based on a multiunit 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 & Terms
Short-term multifamily loan rates vary by lender. Pricing is risk-based, meaning the more stable the transaction is for the lender, the better the pricing for borrowers. Because hard money loans and bridge loans are typically short-term, the rates are higher, but they can close loans quickly.
Hard Money Loan Rates | 7.5% to 12% minimum |
Bridge Loan Rates | 5% to 12% minimum |
Terms | 6 to 36 months |
Loan Origination Fees | 1% to 3% of loan amount |
Exit Fee | 1% of loan balance |
Prepayment Penalty | 1% of loan balance |
Funding Time | 10 to 45 days |
Short-term Multifamily Mortgage Loan Requirements
Most short-term multifamily lenders focus on investor equity or the profitability of the property. These lenders typically accept lower minimum credit scores. Be prepared to have all documents pertaining to the financials of the property ready if you decide to use short-term financing. Bridge loans cover gaps that occur when buying and selling multiunit properties. Bridge loans often require excellent credit and have higher interest rates, but they seldom have repayment penalties
Minimum Units | 2 |
Minimum Equity | 20% |
Minimum Credit Score | 550 hard money loan, 640 bridge loan |
Minimum DSCR | 1.05 |
Investor Experience | 2 to 3 past rehab projects or 3 years multifamily ownership |
Where to Find Short-term Multifamily Financing
Alternative lenders like RCN Capital offer ideal short-term financing options for multiunit buildings, condominiums, townhomes, and multifamily apartments. Using RCN, you can close on financing fast. Visit its website to get preapproved in just a few minutes.
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.
How to Apply for a Multifamily Loan
When applying for a multifamily loan, lenders will want to know more about the property as a business and require extensive documentation for underwriting. When you’re ready to purchase or refinance a multiunit property, you need to submit 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. If you have a real estate investing business plan, it can help with your ability to obtain financing if you include it.
Some other documents you may be asked to provide are:
- 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.
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.
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 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.
Bottom Line
Multifamily loans are used by investors to finance multifamily properties between two to four units or commercial-residential properties of five units and up. These properties can include condos, townhomes, duplexes, apartment buildings, and portfolios of properties. However, there are many different multifamily financing options available, and it’s important to understand the best ways to invest in real estate.
CoreVest offers loans for multifamily rental properties with one to four units. This national lender can finance up to 75% LTV. Terms are 30 years with competitive fixed or variable rates for prime borrowers. Fill out a short quiz to find the product best suited for your needs, and a representative will get in touch with more details.
Big Tex
As others have already said, this an extremely well written article. Great info, analysis, with relevant and unobtrusive ads — and no “guru” talk! Thank you, writers, researchers, and editors! Your site is great. Respect.
Evan Tarver
Thanks Joseph, I really appreciate it. We did put a lot of work into this article and glad people have found it valuable. Keep reading and sharing if you find other topics of ours to be interesting.
Rich
Hi!
You mention portfolio loans at up to 97%, but the only lender you link to provides only 80%. Where do I go to get that 97%?
Thanks!
Allison Bethell
Thanks for your question Rich. These vary by lender but in some cases, FHA approved lenders will go up to 97%. An FHA article will be published soon on the site and it goes into detail on multifamily loans.
Best of luck,
Allison
Steve
Great article, very informative. Will all the programs mentioned allow for LLC ownership as opposed to an individual? Also when you mention cash reserves/liquidity does it apply to only the property being purchased, or to all properties held by that person/entity?
Kyle Roy
This is great. I wish there was a section on contstruction financing. I assume the terms are much like the hard money loans described but the description section doesn’t address construction, just renovation or seasoning. I’d like to know how the process from construction to roll over into a portfolio loan would work & ballpark rates. Looking at building a 12 unit multifamily. Early proformas pencil pretty well but not sure my loan rate math or % debt to equity for the 2 phases reflects current reality (assuming about 6% interest and 75% Loan to hard costs for construction with interest only, 3.8% LTV upon stabilization and 30 year ammort.
Allison Bethell
Hi Kyle. Allison here, I’m a real estate investment writer. I’m glad you enjoyed the article. In general, construction loans are generally short term with variable rates and lenders need to see a construction timetable as well as a budget, your experience level, and detailed plans. For more specifics please check out these helpful articles:
https://fitsmallbusiness.com/what-is-the-loan-to-cost-ratio-ltc/
https://fitsmallbusiness.com/best-portfolio-lender/
Lois
This is detailed and good. Thank you for such a detailed post!
Evan Tarver
Thanks for the kind words, Lois! Keep reading.