What is Multifamily Financing, What You Need to Know

December 20, 2018

If you are looking to purchase a multifamily home, it is essential to understand that the real estate and mortgage industry look at single-family homes differently than multifamily investment properties. Since multifamily dwellings are not traditional single-family homes, it can be a little tricky finding the right financing for your purchase. Here we will discuss what you need to know before financing a multifamily property.

Property Types
There are various real estate property types that a purchaser will seek financing for; these types include:
  • Land – raw land that can be developed and built upon
  • Single-Family Residence (SFR) – property that is made for a single family to reside in
  • Multifamily Residences – features that are created with at least two or more units contained within the structure
  • Commercial – property that is built for business use includes multifamily residences that exceed 4 units
  • Timeshare- a property that’s a shared ownership vacation real estate model in which multiple purchasers own allotments of usage. What’s even better in these property types is that there are timeshare exit companies that facilitate easy exit, in case an owner wants to cancel the ownership. 
Owner-Occupied vs. Non-Owner Occupied Property
Property that is purchased as the residence of the purchaser is considered owner-occupied. This property is available for traditional financing. Property that is non-owner occupied is viewed as an investment property. This is part of what makes purchasing multifamily residences so tricky.

Financing Single-Family Residences
Securing financing for the traditional SFR is referred to as conventional loans. These properties are typically associated with the standard mortgage loan given by community banks and mortgage lenders. These loans usually fit under Fannie Mae and Freddie Mac, FHA, and VA guidelines.

Conventional loans are intended for homebuyers that are purchasing owner-occupied homes. These same traditional loans can be used to buy multifamily properties that have 2-4 units and will be occupied by the purchaser as a primary residence.

Financing Investment Multifamily Residences
Multifamily investment properties do not fit into the criteria for conventional loans. Investors are not able to obtain financing from traditional banking institutions, but there are mortgage lenders that have programs designed for the multifamily property investor.

Choosing the Right Multifamily Lender
Multifamily lenders will almost always have a higher interest rate and require a shorter time period for repayment. As an investor, you have to be prepared to bring the cover the closing costs to the table for closing. The amount that you will need is based on the lender and loan program you select.

It helps to find a company that is dedicated to multifamily investment purchases and is familiar with the nature of these often complicated deals. You also need to find a company that is able to supply loans to your state—these companies can be very selective at times. Lima One Capital is a company that specializes in multifamily investment properties, and understands the full scope of multifamily deals, and is dedicated to closing as quickly as possible.

Purchasing a multifamily property is often a bit more difficult than single-family homes. Depending on the specifics of your multifamily deal, you may be having trouble locating the right lender. Hopefully, the tips and information provided here have given you a clear understanding of how multifamily financing works.

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