Multifamily Mortgage Loan Options

If you want to buy or develop a Multifamily property, there are many financing options. These include permanent loans from government agencies such as FHA or VA, as well as CMBS and life company loans.


Different types of Multifamily mortgage loan require a different set of documentation, but most lenders will look at the borrower’s credit score and income to determine eligibility. Some will also require reserves.

Conventional Loan

Conventional loans are a common financing option for multifamily properties. They can come in the form of permanent or short-term financing packages and are typically amortized over 20 to 30 years with fixed or floating interest rates. They can be issued by a variety of lenders including traditional banks, life insurance companies, and CMBS lenders.

Conventional multifamily loan types include conventional Fannie Mae and Freddie Mac mortgages (also known as agency loans), HUD financing, CMBS lending, and life company debt. Conventional loans may have fixed or floating interest rates, depending on the loan type and lender. These loans also have different credit requirements. For example, some conventional loans require a higher maximum DTI than FHA, VA and USDA loans.

While there are many benefits to getting a conventional multifamily loan, it is important to understand the credit and DTI requirements before applying. Lenders will review borrowers’ credit scores, debt-to-income ratio and down payment to determine if they are a good fit for the loan.

Conventional multifamily lenders will usually prefer borrowers with a high credit score and a low DTI to minimize the risk of default. They will also want a significant down payment, which is usually 20% of the total purchase price or loan-to-value. However, it is possible to get a lower down payment with certain types of conventional loans, including those issued by the Federal Housing Administration and Veterans’ Affairs.


CMBS loans are ideal for multifamily properties that don’t fit the underwriting requirements of agency lenders like Fannie Mae or Freddie Mac. Conduit borrowers typically enjoy a more flexible underwriting process, with less red tape and a focus on property income rather than credit, net worth, or commercial real estate experience. They also enjoy lower debt service requirements and higher leverage allowances, and they can often qualify for interest only payments (which free up cash flow) while retaining the ability to refinance at the end of the loan term.

Unlike traditional loans, CMBS loans are not offered on a stand-alone basis; they’re packaged with others and sold on the secondary market in a process known as securitization. These pools of loans are then sold to investors who take on the risk of the pool and receive the benefit of the loan’s monthly payment over time.

When it comes to the CMBS lending industry, there are a few major players that dominate the space. As of 2018, the top five CMBS lenders had a combined 50% of the market share. These lenders range from large investment banks to smaller organizations that may be less well-known. Regardless of who you work with to secure your CMBS deal, be sure to review the terms and conditions carefully to avoid surprises down the road.

Short-Term Loan

If you’re a commercial real estate investor that’s looking to diversify your portfolio by adding multifamily properties, there are several financing options available. The type of loan that’s best for you will depend on your goals, the property’s condition, your credit quality and principals, as well as the amount of leverage you require.

Some types of multifamily loans, like CMBS and HUD, are permanent financing solutions with fixed interest rates and high loan-to-value ratios. Others, like short-term loans and private money, are temporary and offer more flexible terms.

When it comes to underwriting standards, each lender will have their own set of guidelines for multifamily lending. Life companies, HUD and Fannie Mae will typically have the strictest requirements followed by banks and credit unions, then CMBS and conduit lenders. Private money or hard money lenders tend to have the most lenient guidelines and can lend to investors with lower credit scores and debt-to-income ratios.

Other factors to consider when choosing a loan include whether it’s an agency or non-agency loan, whether it’s a fixed or floating rate, and the lender’s prepayment penalties and required reserves. These are additional fees that may not be part of a traditional mortgage loan but can impact an investor’s ability to take on future deals. For instance, some Freddie Mac and Fannie Mae multifamily loans require borrowers to contribute a percentage of their rents each year into a replacement reserve fund to cover expenses like plumbing repairs, HVAC replacement, or parking lot, sidewalk, and driveway repaving.

Hard Money Loan

Hard money lenders focus more on the value of the property being used as collateral than a borrower’s credit history. They also typically offer a faster turnaround time than traditional mortgage lenders. However, this type of financing comes with higher interest rates and shorter loan terms (from a few months to a few years).

A hard money lender might offer 100% financing, which can cover the purchase price plus the cost of renovations and other costs related to turning the property into a rental. This can help reduce upfront expenses, though you may need to cover some business and marketing costs out of pocket.

You’ll need a high credit score and financial qualifications to qualify for this type of financing. However, you can improve your score and finances to access other types of loans that offer better rates and terms. Nav can help you discover other loan options that fit your financial and credit needs.

To get a hard money loan, you’ll need to find institutions that specialize in this type of financing. You can start by doing a quick internet search for hard money lenders in your area. You can also ask for recommendations from real estate agents and local investor groups. You’ll want to compare several lenders to determine who offers the best rates and loan terms.