Multi-Family Home Loans | What You Should Know

Multi-family houses can make great investment properties for anybody who is interested in the real estate industry. In order to buy a multi-family home, you will need to understand the concept of these types of loans.

A multi-family home is a property in which more than one family resides. This can consist of anywhere from a duplex to an apartment building. As long as the property is built for more than one family it can be classified as a multi-family home.

There are several important factors that need to be taken to consideration in order to take out a residential loan:

1. Find out how much money you can afford. Keep in mind, which you will be paying your loan based on the rent that you receive from your tenants. In order for you to make a profit in excess of your rent collection, you will have to charge enough rent to cover your multi-family house loan plus the additional amount to get extra money. It is important to know that the house will come with all of the maintenance and repairs that you would normally get when you by a single family home. In this case, however, the amount is multiplied, and is considered a hefty expense.

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2. It is wise to find expert multi-family home lenders, so that you can obtain several quotes and several requirements for your purchase. The different lenders will provide different options and requirements, that you can compare and make an educated decision about buying a multi-family house.

To secure their loan, some lenders will require a certain percentage of the purchase price as the down payment.

3. The rates and terms of the loan are very important in order to determine a future acquisition for your investment. The rates are just as valuable to determine the monthly payments that you will be repaying back to the lender.

The multi-family loans can be fixed and floating rate commercial mortgage loan programs to meet large and small balance needs for all commercial property types of business:

– Conduit
– A Small Balance
– Single Tenant and or Single Owner
– Investment Grade Credit Tenant
– Bridge Loans
– Construction Loans
– Mezzanine Debt ($20M+)
– Equity & Preferred Equity ($20M+)
– Single Asset & Portfolio

Property Types Include:

Multi-family, Mobile Home Communities, Mixed Use, Retail, Office, Office Condo, Office Warehouse, Light Industrial, Self-Storage, Hotel/Motel.
Eligible Properties:

Construction, Take-out, Acquisition and Refinance of both garden-style and hi-rise buildings multifamily/condo properties are acceptable.

Eligible Property Locations:

Nationwide. Market areas with a stable current occupancy. Rent concessions will be underwritten cautiously and typically require higher coverage and reserves.

Loan Size:

$1Million – $50 Million; A large portfolio transactions with suitable project economics and sponsorship may be considered.

Debt Service Coverage:

1.20 x minimum

Loan-to-Value Ratio:

Up to 80% for Fannie Mae DUS, Conduit and Life Company Programs, Up to 90% on FHA insured loan program.

Loan Term:

Permanent Financing Terms: 5, 7, 10, 15, 20, 30, and 35 years.
Construction Loan Terms: 12 – 36 months with extensions available for larger projects.


35 years or less depending on age, quality of construction and market location.


Leases should be at least 6 months at initial occupancy of a tenant. Consider corporate-type, short-term leases at initial occupancy of a tenant. Consider corporate-type, short-term leases providing furniture and/or maid service on a case-case basis.

NOI Calculation:

The preference is given to receiving of three full years of operating history. Underwrite rental revenues based on last three monthly rent rolls and trailing 12-month history with adjustments where appropriate. Other income, if sustained, on trailing twelve months basis. Generally underwrite expenses based on last full fiscal year, plus a 3% inflation factor subject to industry averages.

Vacancy Factor- The greater of 5%, local market average or the actual property for the most recent 12-month period (including all forms of economic rent loss).

Management Fee – The greater of 5% effective gross income, the actual management contract fee rate, or the industry average.

Capital Reserves – Generally ranging from $150 to $250 per unit, based on the final engineering report, physical inspection, tenancy and age of property.

Time Frames:

Term Sheets within 48 hours, Commitments within 10 days of submitting Pre-Qualification package, Closing within 60 days of commitment.


Loan Fees: 1-3% of the loan amount
Third party legal, environmental, appraisal and other fees will apply.

Multi-family Home Loans Checklists:

Your real estate lender professional will underwrite, fund and service the mortgage loans on multi-family rental properties; which will provide loan application review, and will require the flowing information prior to the loan analysis:

o Acquisition purposes of the fully executed purchase and sale agreement.

o Current Rent Roll. Including contract rents, regulated units, apartment numbers, room and bathroom count.

o Operating Property statements for the year to date and prior year

o Map, address, location and the site plan.

o Most recent pictures and property description and plan, including year of building information and utilities info.

o Charts of units, indication the amount of bedrooms, bath, floor plan; including the current rates; lease dates; start and end dates, certificate of occupancy, number of employee units.

o Personal Finance statements and the resumes of the borrower. Detailed monthly statements of income and expense for the past three years, as well as year to date and proforma by month.

o Most recent appraisal

o Operating Budget information

o Statement of debt and/or refinancing purposes, the original purchase price

paid for the property, date of purchase and current financing.

o Construction purposes, cost break down and project time line. Repairs and capital improvements declaration

o Detailed Declarations of use of funds, commitments, project costs.

o Trust documents.

o Market analysis and rent survey.

o Low-income residency restrictions

o Tax credit purchases; tax credit application, feasibility review.
Typical property types for commercial loans are:

1. Owner occupied commercial

2. Self Storage

3. Office Building

4. Retail Strip

5. Warehouse

6. Single Tenant

7. Apartment/Multifamily

8. Manufactured Housing Communities

9. Hotel/Industrial/Mobile Home Parks