Multifamily Loan Options

Multifamily loan options depend on several factors like the number of units, the loan amount size, occupancy rate, if the seller can provide P&L’s or tax returns, your experience, population, value per door etc. will determine which multifamily program you will be able to apply for.

The HUD program has a 35-year fix and 35-year amortization with rates in the high 4’s, the loan amounts can go down to $2MM but many lenders do not want to lend on anything less $5MM+. The caveat with a HUD loan product is that it only allows you to pull money from an escrow account 2x a year plus you have to pay an auditing fee annually. The HUD program is an amazing product because the rate and the amortization make a property cash flow well. Even though the HUD program doesn’t require you to be experienced, the program is truly created for a more experienced investor because of the cost and the structure of draws.

If your loan amount is $1MM above you can go with Agency products like Fannie Mae and Freddie Mac which does offer 5-year, 7-year, 10-year etc. fix with up to 30-year amortization. The guidelines on agency allow $250K but most lenders do not lend unless the loan amount is above $1MM.

If the loan amount is below $1MM than you can apply for commercial loan programs that do offer the 5-year, 7-year, 10-year with up to 30-year amortization but the rate is going to be higher than agency rates.   The minimum loan amounts on some of these programs vary between $250K to $999K.

There are programs for loan amounts below $250K but the rates are even higher but you still have the ability to utilize the 30-year amortization.

You can go to the local bank and get a loan but their products are different.  First off, most local banks require the clients to live in the area of the bank and the property.  The local bank typically offers a 5-year fix either with a 5 year fix with a 20-year amortization or 15-year fix with a 15-year amortization.  The rates are better than the 30-year amortization but typically the PAYMENT ends up being higher on a 15-year and on the 20-year amortization.

Also, bank loan qualification and documentation are more tedious because the loan has to able to global debt service. Global debt service means looking at your personal and all business tax returns and then all your personal and business debt to calculate the debt service. Lastly, when the bank calculates the debt service, they use a higher rate than what they quoted to test risk of the loan.

Some of the programs listed above require a global debt service but there are other programs that only debt service the property.