Multifamily Loans: What You Need to Know
Financing a multifamily property is different from financing a single-family home – but it’s entirely possible, and it may be the perfect way to jump-start your career in real estate investing. Here’s what you need to know about the various types of mulifamily loans.
Multifamily Loans: What You Need to Know
When you want to buy a multifamily property, you have several options for financing. You may be able to use:
- Bridge loans
- CMBS loans
- Fannie Mae or Freddie Mac loans
- FHA loans
- Traditional bank loans
Here’s a closer look at each.
Bridge Loans
A bridge loan is a short-term loan that gives you the money you need while you wait for conventional financing. Bridge loans typically come with higher interest rates, and they’re more short-term than conventional mortgages are (they usually last between 18 and 24 months).
CMBS Loans
CMBS loans – short for commercial mortgage-backed securities – are sometimes called conduit loans. These commercial mortgage loans are secured by a first lien against a piece of commercial property. The property and its profits are collateral. You can use these loans for multifamily properties you intend to purchase as investments (as well as other commercial uses, such as industrial, mixed-use, office and retail).
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Fannie Mae or Freddie Mac Loans
Fannie Mae and Freddie Mac offer financing on multifamily properties. They typically offer 75 to 80 percent in leverage and offer competitive (if not low) interest rates. You can use these types of loans, if you qualify, to buy a multifamily property. There are even loan products with pricing incentives for multifamily properties that meet green standards or that are considered to provide an affordable housing option.
FHA Loans
FHA loans are government-insured (by the Federal Housing Administration) and when it comes to multifamily financing, they’re typically those with the longest terms, the highest leverage levels (often up to 90 percent) and the lowest fixed interest rates. These types of loans are usually secured by the property only – rather than the property plus its profits, like CMBS loans are.
Related: Should you manage your own investment property?
Traditional Bank Loans
Your bank can generally give you a loan to buy or build a multifamily property, but the terms will likely be very different from those you’d get with another type of loan. Many banks offer less than 80 percent leverage and may be less likely to offer interest-only options, as well. However, bank loans are right in some situations, so you should explore all your options when you’re considering what type of multifamily financing you need.
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