Mortgage for Multifamily

3 Replies

Hello,

I am new to the real estate investment world and have a few questions about obtaining a conventional loan for financing.  I am looking at buying a medium multifamily (30-50 units) and am looking to spend under 1 million.  I've got enough for 20% down, but are banks able to count your monthly income from rent collection for paying your principle and interest?  

Also, I heard from my real estate agent that some sellers could be considered a "second" on a mortgage......I think that's what he called it.  Is this where the seller stays on the note so we can afford a more expensive property.  For example, if we are pre-approved for $900,000 and we find a property that is listed at 1.5 million, can the seller stay on the note and cover the remainder and charge us (the buyer) a monthly percentage?  Does this sound right?

Thanks so much for any advice you can offer.  I really appreciate it.  

Nick 

It's called a "seller second" - it's a second lien (mortgage) to your first mortgage owed to the seller. The seller is lending you a second note of which you would pay principle and interest (or whatever the terms). But usually the first lender will want to see your own skin in the game so there's a limit to what they'll allow. Say they have a max CLTV of 75% (that is they'll lend you 60%, but require at least 25% to come from your personal funds), that leaves up to 15% for a seller second. In your example, the first mortgage would be for $900,000. The second would be $225,000. Your down payment would be 375,000. Again though, this is all contingent on what your first lender will accept.

Some lenders allow a seller second, some don't.  You must disclose this is happening.

If you're a new landlord, many lenders will not count the rental income until you have two years experience.  They want to be sure you're able to cover the mortgage even if your plans don't work out as well as you think.

But, you're talking about a big multi. This is commercial loan territory. Hopefully you're aware you're not getting a 30 year fixed rate loan for a deal like this. 15, maybe 20 for a fixed rate, fully amortized loan. More likely something with a 3 to 7 year balloon. Or ARM terms. Or both. I also don't think 20% down is enough. Do you have a lender you're working with?

Do you have experience?  Commercial lenders are going to want to see experience to make a loan like this.

Originally posted by @Nick Heltemes :

Hello,

I am new to the real estate investment world and have a few questions about obtaining a conventional loan for financing.  I am looking at buying a medium multifamily (30-50 units) and am looking to spend under 1 million.  I've got enough for 20% down, but are banks able to count your monthly income from rent collection for paying your principle and interest?  

Also, I heard from my real estate agent that some sellers could be considered a "second" on a mortgage......I think that's what he called it.  Is this where the seller stays on the note so we can afford a more expensive property.  For example, if we are pre-approved for $900,000 and we find a property that is listed at 1.5 million, can the seller stay on the note and cover the remainder and charge us (the buyer) a monthly percentage?  Does this sound right?

Thanks so much for any advice you can offer.  I really appreciate it.  

Nick 

 Give yourself a better cushion and buy a smaller property if you intend to work with just under $200K. That 20% DP is a fallacy. Keep this as a rule 25-35% sometimes 40% plus the ability to show reserves of 6 mths payments. If you have a partner coming with the rest then fine. Will you have to use it all? Not always. Will you look 10 times more credible? Absolutely. 

For example, if we are pre-approved for $900,000 Pre approved?