What is Multifamily Financing?
If you are looking to invest in a multifamily property such as an apartment building, multifamily mortgages may be the best option for you. These mortgages are very similar to traditional mortgages, but are applicable toward the purchase of properties that are designed with individual living spaces for more than four households. Most multifamily loans require the same types of qualifications that other loans on commercial properties do.
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Banks and mortgage companies that provide commercial mortgages will usually offer financing for multifamily properties. Qualifications and the details of these loans will vary from lender to lender, but all lenders must comply with state and national laws relevant to issuing mortgages.
In the case of most multifamily mortgages, lenders will only finance about 80% of the market value of the multifamily property. This reduces the lender’s risk in case of foreclosure or default. If this happens, the lender can recover the losses on the loan, including foreclosure costs.
If you need financing upwards of 80%, however, there are some lenders that may offer you a higher financing limit. If you have an established relationship with a lender, for example, you may be able to get a better deal. Alternatively, if the value of the property is expected to appreciate significantly in the near future, you may be able to borrow close to the entire amount of the purchase price. In this case, you should look for properties in areas of high projected growth and value.
Multifamily mortgages are similar in many ways to any mortgage. The mortgage will be issued with an interest rate (either fixed or variable) that is applied toward the interest. The borrower is required to repay the principal amount (the amount originally borrowed) plus accumulated interest within a given time frame. Thirty years is a typical length of time for a mortgage repayment (though watch out for mortgages that may include penalties for paying off the mortgage quickly). You can expect to make monthly payments toward your principal and interest. As the borrower, you can expect to have the same rights and responsibilities applicable to any mortgage contract when you take on a multifamily mortgage.
If you have decided that a multifamily mortgage is for you, you will need to research your options for lenders. Look for lenders that will offer you the best deal—the highest financing limit, the lowest interest rate, and the fewest penalties for things like paying off your mortgage early. Some government-sponsored programs, such as Freddie Mac and Fannie Mae, offer multifamily mortgages. Private lenders who deal with commercial mortgages will often offer these as well.