Multi Family Loans

by : Eric Morgan

Buying into an investment property for yourself and your family is a good way to get started in real estate. Whether you are looking to expand later on, or simply want to secure a future for your family, buying a multi-family residence is a great way to provide this need. Here are some things you will need to know about getting a multi-family loan for the apartment building of your choice.

A multi-family residence basically means that the building has more than one apartment in it. Applying for a loan for a multi-family dwelling is generally based on the number of apartments that the building has in it. For instance, if it has between two and four apartments, then you would need to get a residential loan. This type of loan is much different than your would need for a larger apartment building.

When you go to buy an apartment building that has more than four apartments in it, you will need to get a commercial loan. This article will focus on what you must do in order to get a commercial loan for your multi-family apartment building.

When you apply to a direct lender for your multi-family loan, it becomes necessary to get documentation on a number of things about the apartment building. In fact, the focus of the information will be on the apartment building itself - and not on you.

Documentation Needed

The first thing that will be needed is documentation about the renters themselves. It is possible that the government may fix some of the rent prices because one or more renters may receive government assistance. This means that their rent may not be increased without approval. Other things that will need to be discovered are how many renters are now in the building compared to how many apartments there are available.

It is important to note that the amount you can borrow on a multi-family loan is partially determined by the number of renters you have in the building compared to how many you could have. In fact, if there are currently no renters at all, then you probably cannot get a multi-family loan, but you would have to get a bridge loan first.

Other documentation required is that there be a complete income and expense statement provided for the last two years. This will be used to help determine the profitability of the building in relation to its regularly scheduled maintenance and projected costs.

Renters Needed

The amount of renters that are currently in the building in proportion to the apartments will determine just how much of a loan you can get. The more renters there are the better deal you receive.

Percentage Available

A multi-family loan will often provide up to 75% of the value of the building - some may go a little higher. The reason for this is because there will always be at least one vacant apartment from time to time, and this means a loss of income.

Necessary Profit Ratio

In most cases, the books for the multi-family building will need to show that there has been a ratio of profitability. This ratio is determined by income versus expense. Many lenders will go down to 1:1.1, but most may require a ratio of 1:1.2. They may also look to see that there is some reserve money available to cover emergency expenses and vacancies.

Loan Terms

Your multi-family loan may come with varied terms, but you can usually get your commercial multi-family loan for up to 25 to 30 years. Loan amounts often start around $250,000; others will start around $500,000.

Just in case you think you might feel safer if you had a way out - or at least an easier way out than losing the building, a way can be supplied. Multi-family loans can come with an assumable feature, making it easier to buy and sell the property.

Other Charges That May Apply

Commercial loans for multi-family dwellings will require an appraisal, title search, etc. In addition, though, there may also need to be an engineering report given, and an environmental report may be needed, too.

Key To The Best Deal

Remember that you can get the best deals by putting down a large down payment. This will reduce your interest rate and may also allow you to get some better features.

There is one final thing that will enable you to get the best deal possible - assuming that everything else looks good. If you and your family actually live in one of the apartments, you can get an even better interest rate. When you make the investment personal, and live in it, the lender likes this idea enough to give you lower rates.

The simple reason is that, if you live there, you are less likely to not make the required payments - even if things get a little rough financially. Since your own residence now is at stake, the lender feels more comfortable and has greater confidence that you will make the payments.