As you may already know, investing in multifamily real estate has the capability to provide a steady cash flow and additional income, if done right. When it comes to real estate, there are a few things to know about financing options, as there are quite a few to choose from. Additionally, working with the right lender can help you better navigate the process. In this blog, we’re going to go over the different financing options for multifamily investors, so when it comes time to sign, you can pick the best loan for your needs.
Fannie Mae and Freddie Mac Loans
These two loans represent a big portion of multifamily home mortgages today, and can be used to buy or refinance properties. Both loans have short-term programs, with terms and pricing for investors of multifamily properties with under 50 units. Fannie Mae also offers long-term loan options up to 30 years. Fannie and Freddie loans typically offer high leverage levels, between 75% to 80% and low interest rates.
Obtaining one of these loans requires working with an approved lender, as the agencies themselves do not offer loans directly to borrowers.
FHA loans, or “FHA-insured financing” are government-insured loans, and are attractive to many borrowers as they offer long-term options with low fixed rates and high leverage levels, up to 85% to 90%. However, these loans can take quite a bit of time to get approved, typically 6-12 months. Similar to Fannie Mae and Freddie Mac loans, FHA-insured loans require borrowers to go through an approved lender. However, the process can be easier and quicker when working with a lender who is familiar with all the intricacies of the FHA approval process, as there are many mandated requirements and guidelines.
Bank loans can be acquired to buy, refinance or construct a multifamily property. These loans are usually recourse loans, which means the bank can go after the borrower’s assets, not just the property when it comes to securing the loan. Additionally, bank loans are less likely to provide 80% leverage, and typically require tax returns as part of their underwriting.
Bridge loans are short-term loans that essentially bridge the gap while you wait for a permanent loan to come through. These loans typically have higher interest rates and range from 18 months to 2-year terms with options to extend. It’s often necessary to get a bridge loan while waiting for an agency loan as borrowers may need to pay for upgrades, meet underwriting standards or improve occupancy or rental rates. Lenders often offer this type of financing in conjunction with long-term financing.
The Bottom Line
Investors need to determine what loan is going to best meet their needs, and provide the best value in the long-run. It’s important to note that these values differ from one investor to another, and really depends on the property and the amount of leverage an investor needs.
Multifamily Loan Options at RCN Capital
If you are an investor looking for financing for multifamily properties, look no further! Here at RCN Capital, we offer short-term bridge financing, fix and flip financing, and long-term rental financing for multifamily properties. Connect with us today to discuss your next multifamily home deal.