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Five Useful Tips When Applying for a Multifamily Loan

Multifamily financing is a mortgage intended for someone who wants to buy or refinance smaller multifamily properties having no less than four units and big apartment buildings with at least five units. Multifamily loans are a good option for both veteran and newbie real estate investors and professionals. Rates are usually around 4.5 percent to 12 percent and terms usually go up to 35 years.

If you’re in search of a permanent multifamily loan for rental units, below are five handy tips you should consider:

1. Apply as soon as possible.

Any knowledgeable loan officer and underwriter will always expedite the process, beginning with the inquiry up to the funding. It isn’t always like that, but there are occasional humps that tend to bring delays. For instance, the underwriter may have backlogs to clear or the borrower may have incomplete documentation. Therefore, it’s always best to begin the process early.

2. There are lots of options.

We just want to emphasize that your options are many and varied – banks, credit unions, private investors, etc. If you know you have options, you will naturally broaden your perspective as to which of them is the most right for you.

3. Lock that interest rate upon getting your loan approved.

This may sound basic or perhaps even trite, but as soon as your loan is approved, lock that interest rate. We all have a take on which direction the rates will go, but does anyone really know with certainty? If you’ve come as far as getting the loan approved, the best thing to do is to lock your rate and stop stressing. This way, you can rule out any rate movement risks and proceed knowing what to expect.

4. Know what differentiates market rate from affordable rent.

When comparing market rate projects and low-priced (government-subsidized) housing loan programs, you will find that the difference is quite remarkable. It’s important to know what type of occupants you will have for the property which you are planning to finance. Experienced multifamily investors know these things like the back of their hand, but newcomers might easily get confused, what with all the subtle differences between renting out market rate and low-cost multifamily properties.

5. Be aware of your debt service coverage ratio.

Finally, multifamily lenders want to be sure that there will be enough funds to settle the debt payments for the financing they provide. They want proof that the borrower will still have an income outside of what must be paid for the owed money. They need evidence that the borrower still has an income apart from the amount that should be paid for the money owed. The minimum requirement for low debt-service coverage ratio requirements is 1.25 and may grow from there. To get your low debt-service coverage ratio, just divide your NOI (net operating income) by the annual debt service obligation.

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