How to finance 5+ Multi Family Units and common terms and conditions

Mortgages are tough business. For both mortgage brokers and investors, navigating the US lender paradigm takes commitment, conversation and contacts. 

Since 2004 I've been involved in the mortgage industry, as of this year I re-activated my NMLS mortgage license to be able to provide more insight and options to my investor based clientele and value to my network. 

As my client' investment portfolios have grown, so has the complexity in getting their goals met and financed. 

One area of particular challenge for multi family investors is when the number of units begins to exceed four (4). Typically most conventional or residential lenders are limited to 1-4 units on the same tax lot. When properties exceed 5 or more residential units often the transaction is considered commercial financing (or small balance multi family) and there is a drastically reduced number of potential lenders often with higher underwriting requirements and costs to close. 

There are niche lenders from 5-8 and 10-24 units, beyond that a broker with commercial experience will provide the best access to variety of guidelines. 

Here is an very general snapshot of what a Lender could require and offer on a 10-20-30 unit multi family apartment complex:

- 20-25% down with a personal guarantor

- 30-35%+ down with non recourse

- Typically the debt coverage ratio should be 1-1.20, or carrying costs should be covered by the rent roll at least equally or with an up to 20% buffer after all hard PITI. 

- 25-30 year amortizations are common often on a fixed balloon of 5-7 years, occasionally with an initial interest only option. 

- Occasionally some lenders may allow cross collateralization of multiple like properties or tax ID's, often with a minimum loan amount of $2.5M+

- As of writing, rates could range anywhere from 7.25-7.875% commonly with 1-2% in lender paid points or premium. Some commercial lenders do not permit lender rebates, so expect to pay 1-3-4% in hard costs. 

- There are lower documentation multi family and commercial loans, usually 65-70%LTV max but often accompanied by near hard money or double digit interest rates. 

- Appraisals can be an initial investment, on a recent six plex, the expedited cost was $4500. 

Several nationwide correspondent commercial lenders offer loan amounts from $1.5-100M