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What is a Multifamily Loan?

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  • Written By: Summer Banks
  • Edited By: Michelle Arevalo
  • Last Modified Date: 05 December 2016
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A multifamily loan is typically reserved for purchasing a property that houses more than one family. In most cases, these types of loans are given to developers or investors to purchase apartment buildings or condominium complexes. The multifamily loan application can be more detailed than similar financing paperwork, and have stricter guidelines for approval.

The lender, or loan originator, may define a multifamily unit applicable for a multifamily loan as any building that contains more than five residential units, apartments, or healthcare facilities. Mortgages are usually financed for a minimum of 40 years for approved limited liability companies (LLCs) and corporations. In most cases, multifamily loans are only approved for 90% of the total value of the property.

After selecting a multifamily property, a corporation or LLC may begin the application process for a loan to cover a mortgage on it. Much like applying for a residential loan, the applicant will need to fill out a series of forms to obtain financing for 90% of the value. The remaining 10% of the total cost is often paid with a down payment, which is made in addition to any closing costs and related fees.

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In some cases, such as those using programs offered by the U.S. Federal Housing Administration (FHA), up to 85% of the closing costs can be covered by the mortgage. These offers of help with costs often consider the price of the property when compared to the property's value. A multifamily loan can often be secured through both private and public loan companies.

There are several different types of loans available for a multifamily purchase. These loans include the small balance loan and the large balance loan. The small balance loan is usually reserved for applicants who need to borrow between $500,000 US Dollars (USD) and $5,000,000 (USD). The large balance loan typically covers loan applications for amounts in excess of $5,000,000 (USD). Other, more specific types of loans may be available, depending on the location of the multifamily property.

A multifamily loan is not limited to the purchase of a new property. In cases where the equity of a property is higher than, or equal to, the total mortgage, this type of loan can be used to refinance the property. Refinancing loans will often differ from original loans, and can reduce the interest rate on a mortgage. With a lowered interest rate and renewed repayment terms, the total mortgage payment may also be reduced.

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candyquilt
Post 2

Yea, taking a multifamily housing loan is a lot of work. You have to submit a whole list of documents like a final budget and how you plan to pay it off in the next 30 or so years. There are also things like zoning proofs, utilities, environmental issues, site approvals and agreements with previous owners or construction companies and so forth.

It takes a lot of planning and organization to get the loan. I actually don't know why it is so complicated. I tend to think that people who buy apartments will be able to pay back their loans quickly since they have rent from the apartments coming in as income.

ysmina
Post 1

If the owner of an apartment or condominium wants to remodel their place and needs money, can they also qualify for a multifamily loan? Or is it only given for purchasing?

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