Types Of Multifamily Loans – All The More Reason To Go For It

There are plenty of instances when acquiring multifamily financing seems to be the ideal choice. It is preferred not only by seasoned investors but by new age and millennial investors as well. The simplicity with which you can get a multifamily loan is mind-boggling. Their process is fast and easy to understand as well. Following are a few types of multifamily loans that give you a strong reason to choose them over any other form of credit. But before we talk about that, let’s understand what a multi-family loan is in the simplest terms.

Multifamily loans can be short-term or long-term loans. These can be used for the development, purchase, and rehabilitation of multifamily buildings and/or real estate holdings.

These types of loans are usually ideal for assets with five units or more.

The loan is typically going to start at around $500,000. It could range all the way up to tens of millions of dollars depending upon how much liquidity you seek. You can discuss the payable interest rates, term rates, clauses regarding the loan limits, and details about the down payment with the bank before you sign anywhere. All of these terms will be determined by the specific loan program that you’ve chosen.

You should be able to find several types of multifamily financing in the market. However, the most popular ones are listed below:

• Government-backed loans

• Conventional loans

• Private loans

1. Government-backed loans

Government-backed loans are usually issued through or are backed by the Federal Housing Agency. These include long-term financing and loans that are ideal for stabilized properties. You can get a government-backed loan with a term as long as 30 years. You can also find something with a shorter term that may last for 5 to 7 years.

Multifamily loans have several alternative uses such as:

• Retail

• Commercial or office

• Public parking spaces

• Subordinate modification

• Rehab 

You will find that several government-backed loans come with major benefits. One of those benefits is that they are non-recourse loans which means that the lender is not in a position to take recourse on any other assets of the borrower. The only property under their scope would be the one that is collateralled by the borrower.

2. Conventional Loans

You can get a conventional mortgage very easily. It is a traditional loan that is provided by a traditional lending institution or a bank. You can also choose a credit union, or any other non-bank lender if you want. A conventional loan is going to prove to be perfect for you if you wish to purchase a lower-valued property.

Remember, a conventional loan may have a higher rate of interest as compared to a government loan.

3. Private Loans

Private loans are very popular across the private sector. These may include loans received from a family member or a close friend. Any loan that is received from an established private lending company may also be considered here. These loans are typically associated with a high rate of interest. Private lenders usually offer short-term loans that can last you easily from one year to several years. If your property doesn’t qualify for a government or conventional loan, you may choose a private loan instead.

Conclusion

Multifamily loans are suitable for a wide variety of investors whether they are experienced or new in the game. It’s all a matter of how much flexibility you have and what your particular financial situation is. It will also dictate how easily you’re able to pay back your loan to the bank. Finally, whether you’re in the process of acquiring such a loan or any kind of credit for that matter, do have a look at the terms and conditions of the agreement and consult your financial advisor beforehand.