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What You Need To Know About Financing a Multi-Family Property

Before you make the decision to invest in a multifamily property, there are several pieces of pertinent information that you cannot afford to miss. The expert lenders at Hunt Mortgage Group have compiled some information that we hope will be beneficial to you. Here are some important questions you should consider when making the choice to purchase a multifamily property.

When contemplating whether or not to purchase a multifamily property, everyone should understand that there are two types of multifamily properties. The first one is a residential property, which consist of two, three, or four units. The second are commercial properties, which can contain five or more properties. While each property type has it’s own terms and conditions, financing a multifamily residential property is actually very similar to financing a single-family home. Specialized lenders always finance commercial properties. Meanwhile, most lenders that finance single-family homes also finance multifamily properties.

What exactly is a multifamily property?

By definition, multifamily properties contain two, three or four units, each of which consists of living space and a separate kitchen and bathroom. Properties with five or more units are considered commercial properties. These properties require commercial mortgages.

Why should I buy a multifamily property?

Buying a building with multiple units can be strictly an investment, when the owner rents out units to tenants to generate income. A multifamily property can also be used as the owner’s residence as well while reserving one of the units to serve rentals. If a homeowner is able to obtain a good interest rates in addition to affordable monthly payments, their investment can pay off by adding rental income for the owner.

Do I have to live on the property to finance it?

Your financing options may differ depending on how you intend to use the property. Homeowners who do not plan to live in the property typically will need a larger down payment to buy the home if the loan is of conventional size. Additionally, interest rates for non-owner occupied investment homes will be higher than those that are owner occupied.

Finally, multifamily buyers may also expect stringent credit requirements, larger required cash reserves, and possibly more upfront fees to offset the risk to the loan lender.

Can rental income be used to qualify for a multifamily loan?

Sometimes rental income can be used, but not always: it’s conditional. If a lender is willing to consider rental income as part of the qualifying income for the loan, most often existing rental agreements must be in hand before the financing can be finalized. A vacant building is a greater risk for a lender due to concern that the units might not be filled.

If you are considering purchasing a multifamily home, you should meet with a loan officer to discuss your plans for the building, as well as the available options for financing. The skilled experts at Hunt Mortgage Group can provide information to all of your loan-related questions.

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