Multifamily Loan Types
Discover how refinancing can grow your real estate business or increase the value of your property.
Advantages of Refinancing Multifamily Properties:
1. Lower Interest Rates – A better interest rate can increase your monthly cash flow by lowering your out-of-pocket expenses.
2. Pull Out Equity – Cash-out refinancing allows you to cash out up to 60% of your property’s long-term value (LTV). Cash-out refinancing requires that the property is in a stabilized state. The equity you collect from an existing property through a refinance can be used to buy additional properties.
3. Refinance for Rehab Funds – For a property you own, you can finance minor to substantial improvements for up to 90% LTV of the appraised market value after repairs. Options range from secondary loans, and short to perm refinancing.
Review your options for financing the purchase of a multifamily property, suitable for both first-time property owners and seasoned investors:
1. Conventional Multifamily Mortgages – Conventional mortgages are offered by traditional banks and lending institutions with terms between 3-7 years. Closing costs are typically lower and negotiable prepayment penalties but requires recourse and personal guarantees.
2. Federal Backed Multifamily Mortgages – Multiple government agencies, such as the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac, sponsor multifamily loan programs.
3. Portfolio Loans – Portfolio loans are non-conforming loans used to purchase multifamily properties with a minimum of two units, and 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 financing requirements or who want to finance multiple properties at once. With a portfolio loan, investors can finance four to 10 properties simultaneously.
4. Short-Term Multifamily Financing – Short-term multifamily financing is a temporary loan that includes both hard money loans and bridge loans with interest-only payments. Short-term financing is right for investors who want to renovate or who want to increase the occupancy of a multi-unit property to meet the stricter requirements for transitioning to a permanent multifamily loan.
As the name suggests, multifamily construction loans are used to finance the development or rehabilitation of multifamily projects. Construction loans typically have very short terms, usually just one year. In some instances, the borrower may only need to make interest payments on the construction loan while the project is underway.
Once work is completed, the loan must be repaid, or alternatively, it could be refinanced into a permanent mortgage or a new loan. Construction loans are typically offered by regional banks and credit unions.
Multifamily New Construction Loan Programs:
- HUD/FHA 221(d)(4)
- USDA Section 538
- HUD/FHA 232 (Health Care Facilities)
- Insurance Company