Updated March 1, 2024
What is a Multifamily Loan?
Multifamily Loans are for properties of 5 residential rental units or more as defined by HUD, Fannie Mae and Freddie Mac. Multifamily Loans are offered by HUD, Fannie Mae, Freddie Mac, Life Companies, Community Banks, Regional Banks, Credit Unions, National Banks, REIT’s, CMBS, Private Debt Funds and more.
Multifamily Loans with No Money Down
Let’s talk some straight talk about this subject. We get a lot of calls from people who desire to get 100% financing on purchasing an apartment building. I’m not saying this cannot be done but the bottom line is that just like most things in life, multifamily properties are not given out risk free. In my book I go over the top six risks all commercial lenders dread. Number one is the borrower not having enough skin in the game. The last thing lenders want is to take 100% of the risk with the investor risking zero. Even hard money lenders who allow an owner carry second, want the borrower to put 15 – 20% of their own money in.
Two Methods of Purchasing a Multifamily Property with No Money Down
After making it clear above that this is difficult to do, I do have clients that successfully buy multifamily properties with no money down over and over. They still have to pay for closing costs. Here are several methods used:
1. Buying the property under value with a hard money loan — I have a client named Tony who is in his mid-fifties. He has a rare talent of burning the midnight oil and finding C minus apartment properties in his own backyard in Portland, Oregon that are underpriced. He also has several realtors looking for him. He has a long tested relationship with several hard money lenders that will finance 100% of the purchase price. Why? Firstly, they recognize that the property is underpriced and with a coat of paint and a few other inexpensive value adds, rents can be raised and the property will increase in value. Secondly, Tony has excellent credit and always made his payment on time going back many years, and they trust him. Tony keeps all his properties, so after 2 years we are able to place agency financing on them and take out the hard money lenders.
2. Buying the Mortgage Note — Larry is another client of mine in his forties who purchases underperforming mortgage notes or notes in default from banks at a discount. He is able to buy the notes at 100% of their face value and sometimes less. This usually leaves him with 25 – 30% instant equity in the property. He has several expensive bridge lenders that will front him 100% of the purchase price at closing. They are able to do this by placing a second mortgage as security on another of Larry’s properties. Once the property is preforming well, we refinance the property with a conventional or agency loan several years later, or he sells the property.
What is the Highest LTV Multifamily Loan
HUD Multifamily Loans have the highest LTV at 85%, followed by Freddie Mac and Fannie Mae that can lend at 80% LTV. Keep in mind to achieve the highest LTV loan based on Debt Service Coverage Ratio (DSCR), you need to use the loan program that has the lowest DSCR, longest amortization and lowest interest rate. HUD Multifamily Loans hits a home run on all three and this is why this loan program has the highest LTV. To compare the LTV for our top 10 multifamily loan programs go to: What is the Highest LTV Multifamily Loan?
Multifamily Loan Rates
With HUD/FHA consistently having the lowest long term fixed rates, you can click on this link for today’s multifamily loan rates on our 12 most popular loan programs ranked lowest to highest. Most multifamily loan rates tie into the 10 year treasury yield which is called the index. The lender then adds a spread on top of this rate. For example, if the index is 3.75% and the spread is 2.25%, the all in rate is 6.00%. Most community banks use the Federal Home Loan Rate index.
Multifamily Loan Requirements
In my book, I go over in detail the seven requirements or prequalifications that all multifamily lenders evaluate for the borrower and the property. If you do not have the time to learn the underwriting guidelines for the 7 prequalifications on the loan program you are interested in, it is imperative that you have an experienced commercial mortgage broker do this for you. They will already be familiar with the lender’s underwriting requirements.
Seven Requirements all Multifamily Loans Have:
1. Borrower Quality – includes credit score, background check, net worth, liquidity, experience, and the distance you live to the property. Community banks want you to live close to the property and require excellent credit and good income as showing on tax returns. But they are lenient on net worth, and experience. HUD, Fannie Mae, Freddie Mac and CMBS require good credit, net worth and about 12 months of post-closing liquidity. Freddie Mac does not require experience if you live within a hundred miles of the property. Most bridge and hard money lenders just want to make sure you are not broke at closing, but are lenient on net worth, and experience.
2. Property Location – Community banks will usually only make multifamily loans in their own back yards. With the exception of HUD and Fannie Mae, all other securitized lenders including Freddie Mac and CMBS require larger markets with a population of 250,000 or more. Life companies only lend in large markets. Freddie Mac will make loans in small markets but greatly raises rates when doing so. Is this a safe neighborhood? All lenders scrutinize the quality of the neighborhood.
3. Property Income – Fannie Mae and Freddie Mac require a minimum Debt Coverage Service Ratio (DSCR) of 1.25, and HUD 1.176. Many community banks and other lenders require a DSCR of 1.30 or higher.
4. Occupancy – HUD, Fannie Mae, Freddie Mac, and CMBS all require 90% occupancy for 90 days. Life Companies prefer occupancy to be at a minimum of 90% for six months or longer. Community Banks will lend at 85% occupancy.
5. Tenant Quality – All lenders look at tenant quality. What they are really looking at here is how many tenants pay the rent on time or pay at all. If there is a high credit loss on the property, the amount of rent not collected annually is often taken off the gross rental income.
6. Lease Quality – Most lenders prefer six month or annual leases. But many community banks, credit unions, CMBS lenders, and agency lenders will allow some month to month rental contracts.
7. Property Physical Condition – Unless the purpose of the loan is to rehab the property, all lenders require that the property be in, or put in good physical condition based on a property condition report done by a licensed property inspector
Multifamily Loan Requirements and Terms
Top Multifamily Lender Requirements and Terms Comparison Chart
| Funder | HUD | Fannie Mae | Freddie Mac | Community Bank | Regional Bank | Life Ins Co |
|---|---|---|---|---|---|---|
| Loan Size | $3M – $125M | $1M – No Max | $1M – No Max | $250K - $10M | $1M - $25M | $10M plus |
| Fixed Term | 35 years | 5 – 30 years | 5 – 10 years | 5 years | 5 – 10 years | 10 - 20 Years |
| Amortization | 35 years | 30 years | 30 years | 20 – 25 years | 30 years | 30 years |
| LTV | 85% | 75 – 80% | 75 – 80% | 65 – 75% | 70 – 75% | 60 – 65% |
| Int Only Pmts | No | Yes | Yes | No | No | Yes |
| Non -Recourse | Yes | Yes | Yes | No | No | Yes |
| Occupancy | 90% | 90% | 90% | 85% | 90% | 90% |
| Rate Lock | At Approval | At Approval | At Application | At Approval | At Application | At Approval |
| Loan Fee | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% |
| Comm Space | 35% of SF | 35% of SF | 35% of SF | 25% of SF | 25% of SF | 25% of SF |
| Assumable | Yes | Yes | Yes | No | No | Yes |
| Prepay Penalty | Declining | Y/M or Declining | Y/M or Declining | Declining | Declining | Y/M |
| 2nd Mortgage | No | No | No | No | No | No |
| Supplemental Mtg | Yes | Yes | Yes | No | Yes | No |
| Loan Deposit | $20K | $12K | $12K | $7K | $10K | $18K |
| Green Program | Yes | Yes | Yes | No | No | No |
| Impounds Tax/Ins | Yes | Yes | Yes | Maybe | Yes | Yes |
| Cap X Reserves | Yes | Yes | Yes | Yes | Yes | Yes |
| Days for Closing | 180 | 60 | 60 | 45 | 60 | 60 |
| Net Worth Req | 10% of Loan | Loan Size | Loan Size | Negotiable | Loan Size | Loan Size |
| Post Closing Cash | 7% of Loan | 12 Months Pmts | 12 Months Pmts | Negotiable | 12 Months Pmts. | 20%/loan |
| Credit Score | 680 | 680 | 660 | 720 | 700 | 720 |
| Tax Returns | No | No | No | Yes | Yes | Yes |
Qualifying for the Best Rates and Terms
Here are some insider tips for getting the best loan terms and rates on a loan you will qualify for:
1. Choose a Lender that has a Lot of their Own Money to Lend – Many banks have to borrow money from the Feds or other banks. Large banks and credit unions have far more money to lend than they have borrowers. Credit Unions are especially negotiable. Since they are non-profit and do not pay taxes they can afford to lend at lower rates. It’s more difficult to qualify for a multifamily loan at a large bank, but their goal is to lend at higher rates than they are paying their depositors.
2. Choose a Community Bank if You are Short on Cash, Net Worth and Experience – Most multifamily lenders require a net worth equal to the size of the loan and at least 10% or 12 months mortgage payments left in cash after the loan closes. Community banks require good credit and income but are much more lenient on net worth and liquidity requirements. Current multifamily ownership experience is a must for most lenders, but community banks are happy to help out a newbie.
3. Choose a Lender That Will Lock the Rate at Application – Most multifamily lenders lock the rate at loan approval or just before documents are drawn. Freddie Mac and Regional Banks allow you to lock the rate at application with a refundable at closing 1.00% of the loan amount rate lock deposit.
4. Borrow from a Credit Union if you Don’t Want a Prepayment Penalty – All federally chartered credit unions are not allowed to have a prepayment penalty. If you want to fix and flip the property this can be a godsend.
5. Use These Lenders if You do Not Show Much Income on Tax Returns – All banks are required by federal regulators to collect tax returns because they want to verify that the borrower has excess personal income to qualify. HUD, Fannie Mae, Freddie Mac and CMBS lenders do not collect tax returns.
What Credit Score Do You Need for a Multifamily Loan
Most investors get their multifamily loans at banks. Credit is very important to all banks which prefer FICO scores of 720 and above. However for stronger borrowers who have plenty of cash and income they will go down as low as 680 credit score. Banks will not allow a recent bankruptcy, requiring five years or more since the event, and abhor mortgage lates on your credit report.
Fannie Mae requires a minimum 680 credit score and Freddie Mac a minimum 660 credit score. HUD/FHA does not specify a minimum credit score, but they do require that the key principals have good credit.If you have a score under 660, we can do a poor credit loan for you where the rate is based on your credit score. These loans have rates significantly under bridge and hard money loan rates. Many bridge lenders and most hard money lenders lend at 65% LTV or less and not that concerned about credit. They know that investors rarely default on their loans when they have 35% or more skin in the game.
Top Multifamily Lenders and Programs
HUD/FHA Multifamily Permanent Loan Requirements and Terms
If you are planning on keeping the property long term and want the lowest, longest fix rate term with the longest amortization and the lowest payments, this is the loan for you. Best feature is that if the rate goes down in the future you can apply for a rate reduction loan modification and switch to the lower rate at a nominal cost.
Click here for complete detail on HUD Multifamily Loans and Rates
We have been funding HUD/FHA Multifamily Loans since 1997. They are guaranteed by The US Department of Housing and Urban Development (HUD). Loans are made by their approved lenders. Click on this link for the Advantages of HUD Multifamily Loans and this link for the Disadvantages of HUD Multifamily Loans. Other top features include being about to fix the rate for 35 years on a purchase or refinance and 40 years on new construction. These loans go up to a wooping 85% LTV and are Non-Recourse Loans, and are stated income in nature as they do not require tax return. To learn more about HUD Multifamily Loan jargon click on this link: HUD Multifamily Loan Glossary
Click on this link if you would like to learn more about How Does HUD Define Multifamily and this link if you are interested in learning about Buying Multiple Houses with a HUD/FHA Loan.
Acceptable Property Types: Multifamily, Mixed use, and Senior Housing. Student housing not allowed.
▪ LTV: 85%; 80% with cash out. Up to 87% for affordable rent properties
▪ Loan size: $3,000,000–120,000,000 plus, For more on this Minimum Loan Amount for the HUD 223 (f)
For More Details on the 2 most popular HUD Multifamily Loan Programs click below:
Life Company Multifamily Loan Requirements and Terms
If you are strong financially and looking for Non-Recourse Financing for a multifamily property with the lowest long term fixed rates up to 20 years a life company loan might be the best choice. Life company’s only lend to borrowers that are strong financially and already own two or more multifamily properties. On the down side, they seldom lend more than 65% LTV. Loans start at $10 million.
Life Company Multifamily Loan Requirements and Terms
Property Types: Permanent and Construction loans for Multifamily, Mixed Use, and Senior Housing. Here are our 7 Best Multifamily Construction Loans.
▪ LTV: 65 - 70%
▪ Loan size: $10,000,000–150,000,000 plus
Fannie Mae Multifamily Loan Requirements and Terms
If you are looking for a loan with interest only payments where the rate can be fixed for up to 30 years, Fannie Mae might be a good fit. One benefit is that these loans can be made in very small markets. If you want to compare the two lowest rate programs click on this link: What is the Difference Between HUD and Fannie Mae Multifamily
Fannie Mae, short for Federal National Mortgage Association, is a government sponsored enterprise (GSE) and has some of the lowest rates and best terms around for apartment properties of five units or more. Fannie Mae does not actually make these loans, but guarantees them. Authorized lenders close with their own funds and then sell the loans to Fannie Mae within 45 days of closing. You need to have a minimum of 2 years of multifamily ownership experience and currently own an apartment property that has 5 units or more.
Property Types: Multifamily, Mixed Use, Senior housing, Student housing, and Mobile home parks. Permanent loans only, no construction. Click here for Fannie Mae Multifamily – Top 7 Programs
Types of Loans: Permanent loans only
Property Types: Multifamily 5 units plus, Mixed Use, Senior Housing, Student Housing, Affordable Housing.
▪ LTV: 80%, 75% with cash out
▪ 30-year amortization
Credit Union Multifamily Loan Requirements and Terms
Credit unions have one of the few commercial loans that have no prepayment penalties. They are also known for having lower rates than most community banks. Rates can be fixed for 5 – 10 years at application. Inexperienced borrowers can get their foot in the door but need to have good personal income and 10 – 15% in post-closing cash in the bank at the closing table.You will need to become a member and have a personal and the subject property account at the credit union.
Types of Loans: Permanent, rehabilitation, construction, and lines of credit
Preferred Properties: Duplexes, Triplexes, and Four Plexes and Five Unit Plus
▪ 3 - 10-year term
▪ Loan size: $75,000–15,000,000
Freddie Mac Multifamily Loan Requirements and Terms
Most multifamily loan programs lock the rate at loan approval. Freddie Mac Multifamily can do this at application and has some of the lowest multifamily loan rates for large markets. The smaller the market, the higher the rate. If you need to borrow 65% LTV or less, you can likely qualify for 2 – 10 years of interest only payments. These are Non-Recourse Loans. Just like Fannie Mae, Freddie Mac Multifamily is a government GSE, and does not make the loans directly, but relies on their approved lenders to do this.
Acceptable Property Types: Multifamily 5 units plus, senior housing, and student housing
Types of Loans: Permanent loans, no construction
▪ LTV: 75% with cash out, 80% for purchases or no cash out refinances
▪ Loan size: $1,000,000–50,000,000
Regional Bank Multifamily Loan Requirements and Terms
These recourse loans have some of the lowest rates that can be fixed for 3 – 10 years with a 30 year amortization.You are going to need strong income showing on tax returns, experience, and a net worth equal to or greater than the size of the loan. Rates can be locked with a refundable at closing 1.00% of the loan rate lock deposit at application. Partial term interest only payments may be available.
Acceptable Property Types: Multifamily, Senior Housing, and Mixed Use Types of Loans: Permanent loans
▪ LTV: 75% with cash out
▪ Loan size: $1,000,000–15,000,000
National Bank Multifamily Loan Requirements and Terms
If you are strong financially and have multifamily ownership experience owning 2 properties or more, these lenders will reward you with very low rates and great terms. Even better if you become a private client and invest some of your securities with the bank. On the down side, they only make loans in large population areas. This is where you can get one of the lowest rate multifamily construction loan too.
These are the largest banks in American and include JP Morgan Chase, Bank of America, Citigroup, and Wells Fargo.
Acceptable Property Types: Multifamily, mixed use, student housing, senior housing, and mobile home parks Types of Loans: Permanent, construction, and rehabilitation
▪ LTV: 70%
▪ 25- or 30-year amortization
Community Bank Multifamily Loan Requirements and Terms
If you have a strong personal income showing on tax returns but don’t have multifamily experience, or a high net worth or much cash around; this is where you want to go. These are small banks that only make loans in their own backyards. They prefer locking a rate for 3 – 5 years with a ten year term and two rate adjustment periods.
Community banks can make a loan larger than $10 million by participating with another bank. But that means you have to go through 2 loan approvals. Borrowers rarely know that another bank is involved. You need a credit score of 720 or above and need to have good income showing on tax returns for two years to qualify. A deposit relationship will be required.
Acceptable Property Types: Multifamily, Mixed use
Types of Loans: Permanent, construction, rehabilitation, mini-perm, and credit line
▪ LTV: 75%; 60% with cash out
▪ Loan size: $150,000––$6,000,000
Commercial Mortgage Backed Security (CMBS)
This non-recourse loan is perfect if you are self-employed and do not show much income on tax returns. Why? Because your taxes will not be collected. Rates can be fixed for up to 10 years. If you need a blanket loan on a mix of commercial properties all over the country, this is the loan program for you. Interest only payments can be arranged for the first 2 years.
Acceptable Property Types: Multifamily, mixed use, senior housing, student housing, and mobile home parks.
Types of Loans: Permanent loans only
▪ Loan size: $3,000,000–50,000,000
▪ LTV: 75% with cash out
Debt Fund Multifamily Bridge Loan Requirements and Terms
Although their rates are higher than a bank, theses lenders usually have more money to lend just sitting in their funds account than they have borrowers which makes them negotiable on rates and fees. These loans are easier to qualify for than your bank. Often they can close in 30 days or less.
Acceptable Property Types: Multifamily, Senior Housing, Student Housing and Mobile Home parks
Types of Loans: Bridge, Rehabilitation, and Construction
▪ Loan size: $1,000,000– $50,000,000 plus
▪ LTV: 75%
Crowd Funding Multifamily Loan Requirements and Terms
If you have a solid project but have less than the 25 – 35% down than banks and most other lenders require, these lenders will partner with you so you can put a lot less down. In exchange they will want a preferred return on their investment which means they get paid first on the profits.
Acceptable Property Types: Multifamily, Senior Housing, Student Housing and Mobile Home parks.
Types of Loans: Permanent, Bridge, Rehabilitation, and Construction.
▪ LTV: 75 - 85%
▪ Loan size: $1,000,000–12,000,000
Poor Credit Permanent Multifamily Loan Requirements and Terms
If you have less than stellar credit, these lenders based their interest rates on your credit score. You can fix the rate for 3 – 5 years which will give you plenty of time to improve your credit until you can quality for a conventional or agency loan.
Acceptable Property Types: Multifamily, Senior Housing, and Student Housing
Types of Loans: Permanent only
▪ LTV: 70% with cash out
▪ Loan size: $500,000–6,000,000
For more on Bad/Poor Credit Multifamily Loans go here
Types of Multifamily Loans
1. Permanent Loans – these are 3 – 35 year fixed rate mortgages obtained at Community Banks, Regional Banks, National Banks, Credit Unions, Fannie Mae, Freddie Mac, CMBS, and Life Companies.
2. Bridge Loans – these are temporary loans with terms of 1 – 3 years used to reposition a property, do minor rehabilitation, or do a quick fix and flip. Lenders include private debt funds, and hard money. Most of our bridge loans are non-recourse financing. Click on this link to view more on Multifamily Bridge Loans
3. Multifamily Construction Loans – are used for ground up construction and major rehabilitation where most or all of the major systems are replaced or improved including, structural, roofing, electrical, plumbing and HVAC. Click on this link to view all of our Multifamily Construction Loans and this link for Commercial Construction Loan Rates
Best Loan Programs for First Time Multifamily Investors
Most multifamily lenders require key principals to have current multifamily ownership experience. Community banks and Freddie Mac are the best sources for first time investors. Community banks will make a loan to a newbie if they live close to the property. Freddie Mac will do the same if you live within a 100 miles of the property.
Navigating the Multifamily Loan Process
1. Make Sure You Know what you Want – Be sure to know your objectives for the property so you can match them with the right loan program. For instance, if you are fixing and flipping, you do not want a loan that has a rigid or long prepayment penalty. You can study all the terms for the loans in this article under Top Multifamily Lenders.
2. Make Sure You Apply for a Loan You will Qualify For – this might sound like a no brainer, but you would be surprised how often investors apply for the wrong loan. It can then take an additional 30 – 45 days or even longer to apply for another loan which can kill your deal if you are purchasing a property. An experienced commercial mortgage broker will greatly lower the odds of you making a mistake on this.
3. Make Sure You Have a Complete Loan Package – If you are purchasing a property be sure to include a complete due diligence list in the purchase contract. Write in that the time frames for due diligence will not start until you have collected all the financials and other information you require from the seller. If you are refinancing, be sure to have your personal financial statement with verification up to date and ready at application.
4. Make Sure That Whoever Approves Your Loan Preapproves it – At a bank, this will be the credit administrator. For other lenders it will be the chief lending officer or the credit administrator. Make sure the head honcho has a complete loan package at the beginning to look over and green lights your deal before you put a loan deposit down and start the loan. There is no better insurance that your deal will get approved than this. One of the reasons we have a 97% success rate of closing our loans as proposed at Apartment Loan Store is because we always do this.
Why Real Estate Investors and Lenders Prefer Multifamily
Multifamily is defined as 5 units or more by HUD, Fannie Mae and Freddie Mac. Many real estate brokers and real estate investors consider 2 – 4-unit properties multifamily and they are marketed as such. But this is not technically correct. Out of all types of commercial property, multifamily is the most popular. Here’s five reasons why:
Five Reasons Why Multifamily is the Best Real Estate Investment
1. Largest Pool of Qualified Tenants – Everyone needs a roof over their heads. According to the Pew Research Center, 36% of all Americans rent with 47% of them living in multifamily dwellings.
2. Quick to Lease Up – With the largest pool of qualified tenants, it often takes less than two weeks to make ready and lease a vacant multifamily unit. Compare this to the average of 6 months for retail and 8 months for office space.
3. Lowest Vacancy Rates – According to Census.gov, multifamily properties averaged 6.7% vacancy in 2023. Much of this vacancy was due to over 800,000 new units coming on the market that year. If the property is in a good neighborhood in a large market like New York, Los Angeles, San Francisco or Seattle, vacancy rates hovered at 3%. Compare this to the 12% average for other types of commercial properties, with office having the highest vacancy of 17%.
4. Faster Increases in Rents and Value – Landlords have an opportunity to raise rents on apartment buildings annually by an average of 6% since leases do not run longer than that. Give a multifamily property a new coat of paint, put in new floor and window coverings, upgrade appliances and fixtures and rents in most submarkets can be increased by 12% or more in 8 - 12 months. Rent increases go right to the bottom line and is the best insurance of raising property value.
When I met Conrad in 2002 at the age of 28, he had a net worth of $230,000. We lent him the money to buy a fixer-upper six-plex in Oakland, California which he purchased for $329,000 at that time. Two years later, after some light remodeling and increasing the rents by 18%, the property appraised for $560,000. I did a cash out refinance on that property for him to purchase a 12-unit that had under market rents. Two years later Conrad sold that property, and 1031 exchanged into a 36 unit property. Today, 21 years later he is worth $36 million. He achieved this through a combination of cash out refinances and 1031 exchanges on multifamily properties.
5. Easiest Commercial Property to Finance – With multifamily property being every commercial lender’s favorite, these properties have the largest pool of lenders to choose from. For most commercial properties, lenders have to approve the borrower, the tenants, and the leases; whereas with multifamily, only the borrower needs to qualify.
6. Easiest Commercial Property to Raise Investors – If you are planning to raise investors for part or most of the down payment, multifamily is the most popular choice for passive real estate investors. More syndicated real estate deals are put together for multifamily property than any other type of real estate. Being able to offer Non-Recourse Financing, where no one has to personally guarantee the loan is a huge plus for your investors. For extensive advice on raising investors see my book, The Encyclopedia of Commercial Real Estate Advice.
7. Best Real Estate Property to Survive a Recession – This is the main reason why lenders prefer multifamily property. During good times and bad renters still need a roof over their head and are more likely to pay their rent and skimp on other expenses than risk eviction. Multifamily property values are known to hold their value during a recession better than any other type of commercial property.
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