Multifamily Loans

Multifamily properties are defined as any residential property with at least two units. Duplexes are the smallest, and there’s no limit to how large an apartment complex can be. Triplexes, quadplexes, bungalow courts, garden apartments, multistory apartment buildings, townhouses, and high-rise condominiums and apartments are some examples of what multifamily properties can be.

In addition to being categorized by size and layout, multifamily properties can also be classified according to the demographic they serve. Standard housing, senior housing, student housing, assisted living, housing cooperatives, manufactured housing, and affordable/low-income housing are among the most common classifications used by lenders.

Mixed-use properties that combine residential units with commercial spaces can also qualify for select multifamily financing products.

Lenders assess multifamily properties and investors individually to decide on extending the sought-after property financing.

The evaluation criteria are mainly tailored to investment properties. However, the application, underwriting, and financing acquisition process resemble other loans. The particulars requested and loan attributes differ.

While multifamily properties technically are any properties that have two or more units, a somewhat different definition is commonly used when discussing multifamily loans.

Multifamily commercial real estate loans are generally limited to properties that have five or more units. Many of the aforementioned properties would qualify for multifamily financing, including most bungalow courts, apartments, high-rises, housing cooperatives, townhouses, and similar properties.

Duplexes, triplexes, and quadplexes might still need multifamily financing, but these properties normally don’t qualify for commercial multifamily loans. Instead, loans for properties that have 2-4 units can be obtained from personal real estate lenders. A lender or loan officer who primarily focuses on home mortgages should be able to assist with financing for these properties.

The most classic single-family property is the freestanding house. Owner-owned manufactured homes, townhouses, and condominiums are often also treated as single for the purposes of financing.

Almost all multifamily loan programs listed are for properties with at least five units.

Multifamily property loans offer varying interest types: floating (variable), fixed, or floating-to-fixed.

Floating rates change annually with market shifts, while fixed rates remain constant. Lenders weigh property, borrower, market factors for rates. Govt.-backed loans may have slightly lower rates. Repayment uses the full amortization, not just loan term.

When calculating repayment, the interest rate is applied to the full amortization schedule rather than only the loan term.

Calculating loan repayment manually for multifamily properties can be complex due to factors like term, amortization, balance, and interest rate structure. A loan calculator simplifies tracking changes in repayment with varying interest rates and factors.

It's crucial to utilize a commercial loan calculator for accurate results, as residential mortgage calculators don't address multifamily-specific repayment intricacies.

For multifamily investors, securing a loan involves the preparation of both property-specific and business-related documentation.

On the property side, be ready to present details such as the property's valuation, income streams, construction or renovation expenses, tenant profiles, and any other pertinent data. Although it's advisable to pre-calculate key financial metrics like Loan-to-Value (LTV), Debt Service Coverage Ratio (DSCR), and capitalization rate, expect the lender to scrutinize these figures during the evaluation process. Additionally, gather any documentation that proves the property's eligibility for specialized lending programs. Feel free to use our loan checklist as a reference on what you will need.