What is a Multifamily Mortgage?

Malcolm Tatum
Malcolm Tatum

Multifamily mortgages are loans that are extended for the purchase of properties that are designed with individual living spaces for more than four families. Apartment buildings and complexes that serve provide separate living space for five or more households are usually financed with this type of mortgage. In most cases, the qualifications for multifamily loans of this type are similar to those connected with financing on any type of commercial building.

Multifamily mortgages are loans taken out by property investors to purchase an apartment building.
Multifamily mortgages are loans taken out by property investors to purchase an apartment building.

Obtaining financing for multifamily apartments can usually be managed through any type of lending institution that handles commercial mortgages. This includes banks as well as mortgage companies. While there may be some variance in qualifications from one lender to another, all lenders who offer multifamily mortgage financing must comply with current state and national laws that govern the issuing of mortgages of any kind.

With a multifamily mortgage, the limit of financing is usually limited to somewhere in the range of 80% of the total current market value of the property. This helps to minimize the risk lenders take when financing property of this type. The idea is that in the event of a default and foreclosure, the lender can still recoup all the losses associated with the loan, including the original amount and any costs associated with the foreclosure procedure.

However, there are lenders who will extend a higher limit on financing, if certain conditions exist. For example, the lender may be willing to advance the full amount of the purchase price if there is already an established and favorable working relationship between the borrower and the lender. In addition, some lenders will issue full multifamily loans if there is a strong reason to believe that the property is likely to appreciate in value substantially over the next few years.

Many multifamily mortgage agreements provide terms that allow up to thirty years for repayment of the principal amount plus interest. It is not unusual for the contract to also carry some provisions that would invoke penalties if the thirty-year mortgage were paid off in less than seven years. However, the inclusion of penalties of this type has become less common in recent years and does not appear in the standard mortgage agreements of a number of lenders today.

As with any type of lending situation, a multifamily mortgage is usually issued with a fixed or variable rate of interest applied to the balance. A repayment schedule that is built around monthly installment payments is also implemented. For the most part, borrowers and lenders in any type of multifamily mortgage arrangement will have the same rights and responsibilities that are associated with any mortgage contract.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments


@Suntan12 - I think that multifamily mortgage rates tend to be higher because it is classified as an investment property and you are held to the 20% down payment.

I think that if you qualify for an FHA loan mortgage you might only have to put down 3% because these mortgages are insured by the federal government.


It makes sense to require a 20% down payment in order to qualify for a commercial multifamily mortgage because this ensures that the borrower is serious about his investment and it also protects the banks in case the property values decline.

It also allows for better cash flow. There are really a lot of mortgage options when buying a multifamily property. You could also finance the property with the equity of another property by getting a home equity loan.

This is beneficial if the property that you are looking to buy has structural damages that make the property ineligible for financing.

Some of these cash only deals offer less competition because not everyone has the capacity to pull equity out of a property which is why they are usually offered at a huge discount because there are not as many potential buyers.

If you get an inspection ahead of time you will be able to see if it worth investing in. I know a lot of people that have invested in real estate this way and are now doing quite well now.

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