Multifamily Financing: An Overview


Multifamily financing allows real estate investors to purchase or refinance 2 – 4 small multifamily homes and 5 or more large condominiums. Suitable for beginners and experienced investors alike, multifamily loans offer interest rates as low as 2.625% and terms of up to 35 years. A report suggests that multifamily mortgages in the US have reached a record level in the last three years. So, what is multifamily financing and how do you qualify for it? Let’s get right into it.

What Is Multifamily Financing?

Multifamily financing is similar to commercial lending where borrowers are mainly commercial entities such as property developers and not individual homeowners. What does this mean? Well, multifamily housing is a general term for rental properties with two or more units. They can be as small as a duplex or triplex or as huge as sprawling residential neighborhoods. What’s important to note here is that buildings with five or more dwellings fall under the ‘commercial’ financing category. Such multifamily commercial real estate properties do not enjoy attractive loan options as compared to smaller units.

Types Of Multifamily Financing

Following are the types of multifamily loans and mortgages:

Conventional multifamily mortgage:

This is best for investors who want traditional multifamily financing for two to four units which are in good condition.

Conventional multifamily mortgage loan requirements:

Number of units allowed – 2 to 4

Minimum credit score – 680

Cash reserves – 6 – 12 months

Government-backed multifamily mortgage:

Government-backed multifamily financing is best for two-to-four-unit properties where the owners themselves reside or for investors with properties that have five or more units.

Government-backed multifamily mortgage loan requirements:

Number of units allowed – 5 or more

Minimum credit score – 650

Cash reserves – 3 – 9 months

Portfolio multifamily loan:

It is perfect for investors who want to finance multiple properties at once and are unable to qualify for a conventional mortgage from multifamily lenders like banks, CMBS lenders, and life insurance companies.

Portfolio multifamily loan requirements:

Number of units allowed – 2 to 5

Minimum credit score – 600

Cash reserves – 6 months

Short-term multifamily loan:

Are you a fix-and-flip investor? Then this is the best one for you. It can help you purchase a dilapidated or distressed property quickly.

Short-term multifamily loan requirements:

Number of units allowed – 2 or more

Minimum credit score – 550 to 640

Cash reserves – Depends on lending institution

Thinking Of Constructing A Multifamily Property?

As cities become denser, the need for multifamily housing has never been greater. Finding innovative ways to compress living spaces while creating the sense of a ‘home’ requires an intricate combination of state-of-the-art design and engineering. Multifamily construction is one of the most difficult types of multifamily investments, and getting project approvals and multifamily construction loans carry a certain amount of risk. In general, there are three categories of multifamily properties that investors consider:

  1. Stabilized multifamily apartments
  2. Value-add multifamily properties
  3. Ground-up multifamily construction

Financing for the construction of a multifamily property comes in several forms such as HUD, bank loans and lenders like CMBS, Fannie Mae and Freddie Mac.

Multifamily Financing Terminology You Need To Know

Here are a few terms you need to know to thoroughly understand the concept of multifamily financing:

Hard Money Loan

“Hard money” loans basically mean money from government agencies and other organizations. Under this, borrowers receive money secured by existing property.

Bridge Loan

Bridge loans provide quick and easy cash flow obtained by a company or person.

Non-Recourse Loan

This is a type of secured loan which does not hold the borrowers and principals accountable and liable beyond the pledged loan collateral.


Refers to the percentage of a multifamily property’s rents that qualify as “affordable” according to the definitions set by the Federal Housing Finance Agency.

Funding Time

The time in which the money for your loan will be capitalized.

Cap Rate

Percentage ratio that is used as an estimation for an investor’s possible return on investment.

Debt Service Coverage Ratio (DSCR)

It is the ratio of net cash flow to the total debt service payment on a yearly basis or over any specified period.

Debt Service Reserve (DSR)

This is a reserve account created to fund monthly debt service in the event a borrower is unable to make payments due to unforeseen circumstances.

The Bottom Line

Financing multifamily commercial real estate projects has many nuances. But the good news is that the short- and long-term multifamily debt markets are resilient and offer multiple options to borrowers. If you wish to learn more about multifamily loans, you should definitely meet a multifamily debt broker who can guide you.

Trevor Henson

Trevor Henson is an experienced entrepreneur (10+ highly-successful start-ups) and property investor with a demonstrated history of building and leading teams in investment property management environments, maximizing returns for property owners, and optimizing properties through construction management and re-positioning. He…
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Frequently Asked Questions(FAQs)

Multifamily finance is made up of several loan options which let real estate investors purchase or refinance small and large multi unit properties.

A multifamily bridge loan is a financial tool used by commercial property owners to bridge the gap between the moment they receive a loan and the moment they can do what they want with their property.

No. Multifamily is a residential property whereas commercial property includes shops, offices, warehouses etc. Having said that, there’s a thing called ‘commercial multifamily’ which is any property with more than 5 residential units.