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Purchase or Refinance a Multifamily Property Today
Whether you are a new borrower or are looking to refinance an existing loan, it's important that you partner with a lender like Multifamily.Loans to get you the best leverage and financing terms available.
Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!Understand What is Expected of You as a Borrower to Get the Best Financing Terms Available
The days of walking into your local bank to get a multifamily or commercial property loan are over. Not because your bank can’t finance you, but because there are simply too many options. Today, for example, agencies like Fannie Mae® are offering non-recourse, 10-year fixed-rate loans at 4-5% to qualified borrowers. CMBS financing is another great option for those seeking apartment loans at reasonable rates, and the list goes on. Whether you are a new borrower or are looking to refinance an existing loan, it's important that you partner with a lender like Multifamily.Loans to get you the best leverage and financing terms available.
What we are ultimately looking for in a borrower is someone who has great experience, a net worth greater than the requested loan amount, and liquidity greater than 10% of the loan amount post-closing (not including cash-out on refinances). Keep in mind that this requirement can be reduced for lower leverage loans.
When inquiring about new loans, we are often asked if we can do 100% financing – unfortunately there is no such thing. We can however offer a maximum of 80% LTC (as a borrower you will need to put down 20% cash) for apartment financing. Our minimum loan amount is $1MM but we can make exceptions down to $500k or less subject to location, sponsorship, debt service coverage ratio (DSCR), and other deal-level specifics.
Below is the standard documentation that we will need to get you the most accurate quote whether you will be purchasing or refinancing a multifamily property (view our multifamily forms and templates for additional information).
Property Information:
Summary of CapEx (capital expenditure) to date
Property photos, address, description, unit-mix, age, etc.
Name of Entity (org chart if the structure is complicated)
Personal Financial Statement for each guarantor
Resume/Bio for each guarantor
Property management company info (if not self-managed)
Loan Amount: Maximum proceeds subject to the lesser of (a) an 80% LTV and (b) a DSCR no less than 1.25x
Term: 10-years fixed
Amortization: Up to 30 years
Interest Rate: subject to underwriting and based on rates as of January 2019)
Prepayment: 9.5 years yield maintenance (other options, like step downs, also available)
Assumability: Assumable for 1% fee
Recourse: Loans are non-recourse with standard carve outs
Application Fee: About $15k application fee for third party reports (appraisal, environmental, lender legal, etc.) with unused funds applied towards closing costs
Deposits: Refundable good faith deposit of 2% at time of commitment and rate lock - refunded about 30 days after closing
Closing: Loans typically close in between 45 and 60 days
Loan Amount: Maximum proceeds subject to the lesser of (a) an 85% LTV and (b) a DSCR no less than 1.25x
Term: 35-years fixed (subject to a minimum remaining economic life of 45 years)
Amortization: Up to 35 years
Interest Rate: Vary
Prepayment: 2-year lockout followed by an 8-year declining prepayment penalty starting at 8%
Assumability: Assumable with FHA approval and a 1% fee
Recourse: Loans are non-recourse with standard carve outs
Application Fee: About $25k application fee for third party reports (appraisal, environmental, lender legal, etc.) with unused funds applied towards closing costs.
HUD Fees: 0.3% FHA exam fee (refunded from mortgage proceeds at loan closing) plus an inspection fee equalling greater of 1% of repairs or $30 per unit (payable out of mortgage proceeds)
Deposits: Refundable good faith deposit of 0.50% at time of commitment and rate lock - refunded about 30 days after closing
Closing: Loans typically close in between 120 and 150 days
What are the benefits of refinancing a multifamily property?
The benefits of refinancing a multifamily property include the ability to adjust loan terms, potentially lower interest rates, and access to cash-out refinance options. Adjusting the loan term might provide the option to choose a longer-term, fixed-rate loan to avoid economic uncertainties in the future and lower your monthly payments. A refinance might also allow you to shorten your loan term in order to pay the property off faster. Qualifying for a lower rate now might save you thousands of dollars throughout the lifespan of the loan. A cash-out refinance might allow you to tap into the equity you have accumulated over the years, replacing the old funding with a new loan that is larger than the amount needed to pay off the old note, as explained by Forbes. The difference between the two loans can be kept by the borrower and used for property upgrades or investing in another asset.
What are the requirements for purchasing a multifamily property?
In order to purchase a multifamily property, you will need to have good credit (660+ is usually ideal) and between 25-30% of the total loan amount as a down payment. In addition, the property itself will need to have a debt service coverage ratio or DSCR, of 1.25-1.30x. This means that the building’s income will need to exceed its annual debt service by at least 25-30%.
What are the advantages of investing in a multifamily property?
The main advantage of multifamily investing is that it provides investors with the opportunity for a steady stream of income. With this type of investment, investors are able to rent out the units to tenants and receive a consistent, ongoing return on their investment. Multifamily investments also offer the potential for a higher return on investment than other types of investments, including single family homes, with less risk.
Multifamily properties also perform better in a recession. While different assets across the quality spectrum will behave differently, people always need a place to live. As multifamily homes generally have lower rents per unit than a single-family home, occupancy generally tends to hold steady even in a downturn.
One of the major upsides of investing in multifamily properties is the guarantee of reliable monthly cash flow from renters. Since multifamily properties are rented out to multiple individuals or families, there’s a reduced risk of vacancies — even if a tenant moves out, you can anticipate rental income from the remaining occupied units. Additionally, in a strong rental market, you will be able to fill vacancies fast, getting back to the initial, higher cash flow.
What are the different types of multifamily financing options?
When it comes to multifamily finance, there are several options available to investors. These include:
- Conventional Loans
- FHA Loans
- HUD Loans
- Bridge Loans
- Mezzanine Financing
- Crowdfunding
- Private Equity
For more information on each of these types of financing, please visit Multifamily Financing: Your Comprehensive Guide.
What are the current interest rates for multifamily financing?
The current interest rates for multifamily financing vary depending on the loan program. According to Multifamily Financing: Your Comprehensive Guide, the Secured Overnight Financing Rate (SOFR) and the Treasury rate are commonly used to anchor a loan’s interest rate. According to Multifamily Mortgage Rates (Updated Daily), the current interest rates for the following loan programs are as follows:
Loan Program Interest Rate Term Fannie Mae Loan 4.95% - 7.05% 5 - 25 years Freddie Mac Loan 4.95% - 7.05% 5 - 25 years CMBS Loan 5.30% - 8.30% 5 - 10 years HUD Multifamily Loan 4.09% - 6.59% 5 - 35 years What are the tax implications of owning a multifamily property?
Investing in multifamily properties comes with several tax incentives. It’s possible to deduct operating expenses and maintenance costs, including management fees, insurance, and marketing costs, or any legal and professional services, such as property management companies. Additionally, investors may be able to take advantage of a 1031 exchange, invest in an Opportunity Fund, or take advantage of tax-loss harvesting to reduce their capital gains taxes. The Pros and Cons of Multifamily Investing and Capital Gains Taxes for Multifamily and Commercial Real Estate Investors provide more information on the tax implications of owning a multifamily property.
Borrower Information:
If you are refinancing, we may also need some additional information including when you bought the property, how much you bought it for, how much you put down, your current loan terms, and the current occupancy. To get a better idea of the loan process, we have provided samples below (keep in mind that the below terms are generic and can improve or deteriorate subject to underwriting).
Sample Terms for Fannie Mae 10-Year Fixed-Rate Loans:
Sample of HUD 223(f) Loan Terms:
Although both options cost more to originate than typical bank deals, in the end they offer better long-term financing, interest rate risk protection, and of course leverage. Ready to get started? Click here to get pre-approved for your multifamily loan today!