Multi-family or apartment loans are used to purchase income producing investment real estate. Loans are generally for five units or more dwellings and are categorized as apartment buildings or multi-family housing. Before securing financing for multifamily loans, lenders would like to know your experience as a rental owner and/or manager. They want to make sure you have experience owning, managing, collecting rents, and handling tenants. In addition, you should have a minimum down payment of twenty-five percent (25%).
Borrowers will typically pay a loan origination fee, appraisal, title and escrow, inspections, environmental and due diligence reports. Borrowers must purchase property insurance and flood insurance may be required if the property is located in a government designated flood zone.
Lenders will require bank statements, personal tax returns, business tax returns, business registration or entity documents, rent rolls, Net Operating Income (NOI, annual income, minus expenses that the property generates from its operations), a minimum Debt Service Ratio (cash flow relative to debt payment obligations) of 1.25 (a DSR of 1means that there is equal amounts of funds coming and going out.
If you have a number greater than 1 e.g. 1.5, that means that you have positive cash flow. A number below 1 would mean you have negative cash flow). Calculating your DSR is as follows: DSR= Net operating income (NOI) / Principal and interest payments. A Loan To Value (amount of the loan relative to the value of the property) is less than 75%.
● Lenders like to see that you have a net worth that is equal to or exceeding the loan amount. If you do not meet these requirements, team with another individual or entity that does.
● Talk to multiple lenders, secure your financing before another individual/entity purchases your desired property.
● Lower LTV = lower rate, typically <≡ 75% is preferred
● Check your monthly payments with our Business Loan calculator.