New York City, NJ · Member since 2015 · 13 posts · 3 votes
Hi Guys,
I am trying to learn more about Commercial Multi-Family Financing options. Can someone point me in the right direction on where to get started. I am currently looking at purchasing a 19 unit apartment building..
For example, I am trying to figure out what the common lending terms are like:
What is the min I would be able to put down (assuming in the 15-30% down range)?
What are the common loan terms for fixed mortgage? (25 year fixed or 30year fixed?)
What do lenders expect in terms of reserves? (Do they expect you to hold a certain percentage of reserves in account)
Typical closing time for Commercial loans.. ( I assume 45 days similar to Residential Mortgages)
If i am buying with a partner what is the underwriting process? Will banks look at both of our Credit histories? Does this change when buying with an LLC (any downfalls to this)
Any lenders that you guys work with? Anyone care to share experiences of buying a apartment building.
What is the min I would be able to put down (assuming in the 15-30% down range)?
Usually for apartment purchases, you'll need to put about 25% down. Depending on the cash-flow of the building, some lenders will go up to 80% loan-to-value but that's on a case-by-case basis.
What are the common loan terms for fixed mortgage? (25 year fixed or 30year fixed?)
For multi-family loans, you can usually get 3, 5, 7, 10, 15, and 30 year fixed rate programs, however, the most common I see is usually the 3, 5, and 7.
What do lenders expect in terms of reserves? (Do they expect you to hold a certain percentage of reserves in account)
Reserves really depend on the lender. The most common is 6 to 12 months reserves.
Typical closing time for Commercial loans.. ( I assume 45 days similar to Residential Mortgages)
45 - 60 days usual turn times
If i am buying with a partner what is the underwriting process? Will banks look at both of our Credit histories? Does this change when buying with an LLC (any downfalls to this)
If you're both going on the loan, lenders will look at both tri-merged credit reports. If you're closing in an entity, you'll be the guarantor. The lender may ask for financials of the LLC / entity information.
Any lenders that you guys work with? Anyone care to share experiences of buying a apartment building.
Your questions lean more toward residential experience. Depending on the property, the appraisal alone can take 45 days. Commercial deals tend to be much more complex than residential.
Having said that, a regular single family or 2-4 unit can get done in 45 days.
Many lenders require llc's and personal guarantees.
What is the min I would be able to put down (assuming in the 15-30% down range)?
Usually for apartment purchases, you'll need to put about 25% down. Depending on the cash-flow of the building, some lenders will go up to 80% loan-to-value but that's on a case-by-case basis.
What are the common loan terms for fixed mortgage? (25 year fixed or 30year fixed?)
For multi-family loans, you can usually get 3, 5, 7, 10, 15, and 30 year fixed rate programs, however, the most common I see is usually the 3, 5, and 7.
What do lenders expect in terms of reserves? (Do they expect you to hold a certain percentage of reserves in account)
Reserves really depend on the lender. The most common is 6 to 12 months reserves.
Typical closing time for Commercial loans.. ( I assume 45 days similar to Residential Mortgages)
45 - 60 days usual turn times
If i am buying with a partner what is the underwriting process? Will banks look at both of our Credit histories? Does this change when buying with an LLC (any downfalls to this)
If you're both going on the loan, lenders will look at both tri-merged credit reports. If you're closing in an entity, you'll be the guarantor. The lender may ask for financials of the LLC / entity information.
Any lenders that you guys work with? Anyone care to share experiences of buying a apartment building.
Investor · Centennial, CO · Member since 2012 · 327 posts · 232 votes
9y
Thanks @Percy N.! Hi @Chanel Alexander, one of the things you'll learn about Commercial Lending is that there is no such thing as 'typical'. @Hayden Harper gave you some really good info above. I only know of one lender that offers a fixed term of 30-40 years and that's FHA/HUD. Technically, they are not a lender, but they do guarantee the loan for the actual lender. There are some smaller, local banks you may find that will offer fixed loans, but they usually only go 20 years. FHA loans only make sense on loan amounts in excess of 2-3 Million dollars due to the high, upfront costs of the loan.
Regarding reserves, I want to clarify what Hayden stated above. When he said 6-12 months of reserves, he was referring too mortgage payments which are principle and interest only. This usually amounts to 10%-20% of the original loan balance.
With commercial loans, lenders will expect you to close it in an LLC. No seasoning is necessary and you'll need a separate LLC for each complex.
The lender will pull the credit on anyone that will sign on the loan as a guarantor. If you're not a guarantor, you don't need to sign or have your credit pulled. The better the numbers and property look to the lender, the less emphasis they'll put on looking at the credit reports. Some lenders will also want to see someone in the deal with experience no matter how deep your pockets might be. Others won't care about experience at all as long as you have deep pockets.
Length of time to close a commercial loan - 60-90 days or longer. I don't care what any lender says, I've never had one close in less than 60 days and even that has only happened once!!! The biggest hold up though, is either you or the seller taking too long to get the lender what they need to analyze the deal in order to evaluate and provide funding.
Lender · Morrisville, NC · Member since 2015 · 610 posts · 131 votes
9y
@Chanel Alexander - You have a lot of good questions. A lot of them depend on what kind of property you are buying, the deal size, and what you and your partner's ultimate objectives are. You will need to set up a business entity such as an LLC. There are a few other considerations for you to consider as well. Feel free to reach out to me and I will be happy to talk you through what you'll need to do.