There are a number of different multi-family apartment financing programs available. They are generally divided into small apartment loans for properties between $1 million and $5 million, mid-balance loans for transactions between $5 million and $25 million, and large financing program loans for transactions with no limit. specified upper limit and a lower limit of $2 million.
Financing of small multi-family apartments
The Fannie Mae Loan Program offers financing for multi-family apartments with more than 5 rental units. Loan amounts range from $750,000 to $3 million and have terms of between 5 and 30 years. Another option in this category is an FHA multi-family loan, which is administered by HUD. These government loans are attractive because they are not dependent on market volatility. The funding source remains in place because it is assigned and controlled by the government. Small conduit multi-family apartment mortgages are also available from $1 million to $5 million and terms from 5 to 20 years.
Medium and Large Multi-Family Apartment Financing:
The same basic categories apply to mid-balance multi-family apartment financing as noted above. There are Fannie Mae programs, FHA loans, and small conduit loans for these dollar ranges. There may be other types of loans available besides these, so ask your loan broker about the programs they recommend.
How to get approved for multi-family apartment financing:
Specific programs have their own criteria for borrower approval. These lenders base their decision on both certain criteria the borrower must meet and the stipulations for the multi-family apartment being purchased. An example will serve to illustrate this.
Let’s say you’re trying to get a small loan for a multi-family apartment under the Fannie Mae program. They require that your FICO credit score be greater than 680 and that you have a minimum of 2 years of experience with 2 multi-family properties. They also require that your post-closing liquidity (that is, the amount of cash you will have after you purchase the apartment building) be equal to or greater than the amount of the loan.
As for the property itself, it must be able to demonstrate an average occupancy of 90% in the 12 months prior to receiving the loan and must have 5 or more rentable apartments. Properties are also restricted in most cases to 25-year amortization schedules.
Multi-family apartments are a good real estate investment in these troubled times. Demand for multi-family housing is fairly stable, and the existence of multiple participants (i.e., borrower, tenants, lenders, and possibly government sources) in transaction cash flow patterns set it apart from other lending markets and loans. So if you’re thinking about investing in real estate, this is a potential area to consider.
