What Is Multifamily Financing?
When someone seeks to procure funds to purchase, renovate or construct multifamily housing, professional multifamily financing is the best option. Multifamily housing generally applies to properties that have five or more units. However, this definition can vary according to the specific lender, as well as regional laws.
Often, when a multifamily property is sought for the purpose of generating an income through rental payouts, a borrower will attempt to procure multifamily financing. Developers or individuals who already own properties, but need to build additions or to renovate said property also utilize this type of financing. In this instance, the property may need to meet specific criteria before it can be considered as a good financial risk for the lender.
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Banks can be more cautious with multifamily financing than with conventional financing because the risks tend to be higher. Multifamily properties can be much more expensive than single family residences, and there are no guarantees that the properties will end up generating an income and no guarantee that the lenders’ investments will be repaid. Therefore, more scrutiny is exercised in screening the borrower.
Sometimes multifamily financing is used to purchase individual units within a multifamily commercial property. For example, when someone buys a co-op or apartment or condominium association or when someone purchases units in a building that contains multifamily apartments. This is a tricky type of refinancing because there are some unique considerations to be make before a lender will offer loans to the buyer. Each state has different laws concerning this type of investment and sometimes, cities have their own regulatory procedures.
When selecting a multifamily financing lender, the borrower should look for certain characteristics. First and foremost, the lender’s rates should be affordable. This means it is smart to shop around and compare rates. Second, the borrower will be at a distinct advantage by approaching a lender that offers easy access to federal agency loan programs and that offers the right solution for the borrowers specific needs. After all, each situation is different. What might be the right choice for one lender might not be the optimum for another.
There are many divisions and sub-divisions of multifamily loans. For example, there are fixed rate, ARM, small mortgage loans, structured ARM, capped ARM and interest only loans. These are only some of the examples. Therefore, it is important to find a lender who is experienced and well informed about the different options available, and can counsel the buyer about which options are the most practical.
Some lending agencies exist who will broker loans with correspondent banks, hedge fund managers or insurance companies when they are unable to offer multifamily financing themselves. Some also offer free assessment for valuation and financing. However, some lending agencies have strict requirements. For example, it is not unusual for a lender to decline multifamily financing should a commercial apartment building not have at least 90 percent occupancy for the period of time of 90 days prior to the time that the loan application is made.
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