A Few Things to Know About Financing a Multifamily Property

Written by Posted On Tuesday, 10 December 2013 09:39

There are two types of multifamily properties – residential properties, which consist of two, three, or four units, and commercial properties, which contain five or more properties. Financing a multifamily residential property is very similar to financing a single-family home.

While commercial properties must be financed by specialized lenders, most lenders that finance single-family homes also finance residential multifamily properties. Here are a few questions to consider when deciding whether purchasing a multifamily property is the right choice for you.

What constitutes a multifamily property?

Multifamily properties contain two or more discrete units, each consisting of living space and a separate kitchen and bathroom.

Why buy a multi-family property?

Buying a building with multiple units can be strictly an investment, whereby the owner rents out units to tenants, or it can serve as the owner's residence as well, with one of the units reserved as living space and the others serving as rentals. With a good interest rate and affordable monthly payments, a multifamily property can be a lucrative investment since it brings in added rental income for the owner.

Is financing different for owners intending to reside in a multifamily property and those intending to rent out all of the units?

In a word, yes. Investment property buyers who do not plan to live in the property will need a larger down payment to buy the home if the loan is of conventional size. Additionally the interest rates for non-owner occupied investment homes will be higher than those that are owner occupied. The rationale is that the property has more risk associated with it if the owners are not present and investors who accept more risk increase their fees and interest rates in return. . Obtaining a non-owner occupied investment home that would need a jumbo mortgage is very difficult unless you were to work with a portfolio lender who is interested in such products. Both FHA-backed loans and VA loans are only available to those planning to reside in a multifamily property. Lastly, buyers may also expect stringent credit requirements, larger required cash reserves, and possibly more upfront fees to offset the risk to the lender.

Can rental income be used to qualify for a multifamily loan?

Sometimes. If a lender is willing to consider rental income as part of the qualifying income for the loan, most often existing rental agreements must be in hand before the financing can be finalized. A vacant building is a greater risk for a lender due to concern that the units might not be filled.

Are loan limits higher for multifamily properties than single-family properties?

Yes. While conventional loans in most parts of the country carry a conforming loan limit of $417,000, loan limits for multifamily dwellings rise with the number of units in the building.

If you are considering purchasing a multifamily dwelling, meet with a loan officer to discuss your plans for the building and your options for financing. He or she will be able to answer further questions about your personal situation and whether you are likely to be eligible for a loan on such a property.

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Poli Mortgage Group

About Poli Mortgage Group, Inc: Poli Mortgage Group, Inc. is a privately held business founded by Edmund "Chip" and Chris Poli in 2001.  Poli Mortgage, with its direct lending power, numerous banking and industry partners, highly secure internal platform & process, and best in class Customer Service, is committed to providing a vast range of customized mortgage programs to satisfy any borrower’s financial requirements. Since inception we are over 40,000 transactions and 11 Billion dollars in transactions. Program offerings include FHA, VA, USDA, FNMA, FHLMC, ARM, debt consolidation, home improvement, and other niche & jumbo loans.  For more information please visit www.PoliMortgage.com


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