Many investors are familiar with supporting a single-family house. However, they sometimes become confused and frightened when the discussion turns to multifamily funding. With that in mind, this article will describe the discrepancies between a private and business loan. Also, it will explain the various types of commercial lenders and how to qualify for a business mortgage. A commercial loan is merely a mortgage that supports properties that have five or more units.
Most investors prefer banks when it comes to multifamily funding. You can classify banks under three different categories: industrial banks, savings banks, and credit unions. Many people have supported most of their transactions through industrial or commercial banks.
Regional commercial banks are ordinarily much simpler to work with. They often have a deep understanding of the market, and they always search for demand deposits. With a commercial banker or portfolio lender, it is easier to get a transaction supported. Portfolio lenders hold their mortgages and do not trade them off to the secondary business. This makes them more amenable with their terms. Once you build a relationship, the bank can even give you deals from its portfolio.
If you’re a first-time real estate investor, you should consider getting a loan from multifamily financing services because they offer excellent tools for you to start your investments. Rates are generally in the ballpark of 4.5 percent and 12 percent, and you can find terms up to 35 years. Even seasoned professionals resort to these types of loans.
Multifamily financing is a mortgage system that you can use to buy or refinance smaller properties with two to four units or larger apartment buildings consisting of five units or more. There are four types that you can avail, and each has advantages for certain types of investors.
Conventional Multifamily Mortgage
If you already have a banking relationship with a traditional lender, a conventional multifamily mortgage is the best for you. You can use this type of mortgage to finance a 2-4 unit building that is in excellent condition and use it as a rental property.
Government Backed Multifamily Mortgage
You can be a significant investor who wants to use the FHA multifamily loan to buy five or more units, or you can be an owner-occupant who wants to have 2-4 units of rental property. In either case, a government-backed mortgage is ideal for you.
Portfolio Multifamily Loan
If for some reason you don’t meet all the requirements of a conventional mortgage, don’t lose hope. You can still avail of a portfolio multifamily loan because it has flexible requirements. This type of loan is also available to investors who want to finance multiple properties at the same time because it can finance four to ten properties at once.
Short-term Multifamily Loan
If you’re into buying distressed properties for fix-and-flip, this type of loan is for you. This type of loan can include bridge loans and hard money loans, which you can use to invest in properties fast.
Remember that multifamily mortgages can finance two kinds of properties: residential investment properties with 2-4 units and an apartment building with 5 or more units. You need to know this distinction because the number of units will determine the financing option that you can avail.