Financing a multifamily home is not much different than financing a single-family property. The guidelines that underwriters follow to qualify a borrower and make a loan decision may vary slightly, but the process is similar to any other single-family mortgage loan.
Multifamily homes are properties that contain two, three or four units, and most residential mortgage lenders offer financing for these types of properties. Larger properties with five or more units are considered commercial properties, which carry their own set of guidelines, and require specialized lenders who handle commercial-property financing.
Search the Internet to find a lender that can help you finance a multifamily property. Most residential mortgage lenders offer this type of financing, so the information is readily available. Some of the bigger names in the industry include Countrywide Home Loans, Bank of America, Wells Fargo and GMAC Mortgage.
Contact a few lenders to compare rates. Be sure to ask for a credit preapproval before you apply so you know what to expect. A credit preapproval not only determines if you are credit worthy, but it also gives you the amount of financing you may be eligible to receive. This is especially helpful if you haven't found a property yet, as it gives you a price range in which to shop.
Ask the lender about any points or fees for credit reports, property appraisals, etc. These fees, combined with the interest rate, form the annual percentage rate or the true cost of the loan. Knowing the APR makes it easy to compare prices.
Apply for the mortgage loan. The lender you select can schedule a time to take your application and give you a list of things you'll need to provide for the loan's processing. You will need to provide proof of a clean credit history and steady income, as well as information about your assets.
Wait for a loan decision. Processing and underwriting for multifamily loans can range from a few days to a month or more depending on the company's loan volume. If approved, the loan will be scheduled for closing, which is the final step of the mortgage origination process.
Tips & Warnings
- Before buying a multifamily property, consider both the risks and the rewards. As a landlord, you are in charge of a small business, which means collecting a rent check each month, maintaining the property and providing customer service to your tenants. You also run the risk of dealing with tenants who do not pay their rent or destroy the property, along with maintaining mortgage payments on the property even when the units are vacant.
- The IRS views multifamily properties differently than single-family properties. Be sure to check with your tax advisor for the most up-to-date information concerning deductions when filing your taxes each year.
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