Multifamily Mortgage Loans: A Comprehensive Guide to Financing

Multifamily mortgage loans are a crucial part of building and managing apartment complexes, allowing developers and property owners to secure financing for their projects.

The loan amount for a multifamily mortgage loan can range from $500,000 to over $100 million, depending on the project's size and scope.

To qualify for a multifamily mortgage loan, borrowers typically need to have a minimum credit score of 680 and a debt service coverage ratio (DSCR) of 1.25 or higher.

The loan term for a multifamily mortgage loan can vary from 5 to 20 years, with some loans offering longer or shorter terms depending on the lender and the borrower's needs.

A multifamily mortgage loan can be used to finance a variety of expenses, including construction costs, land acquisition, and property renovation.

Fannie Mae offers two major programs for multifamily loans: the Standard DUS Mortgage and the Small Loan Program. The Standard DUS Mortgage is for the purchase or refinance of existing, stabilized properties with 5+ units and a minimum loan amount of $5 million, or $7 million in eligible markets.

Eligible markets for the Standard DUS Mortgage and Small Loan Program include Baltimore, Boston, Chicago, Los Angeles, New York, Sacramento, San Diego, San Francisco, San Jose, Seattle, and Washington D.C. These markets have a population of at least 200,000.

Traditional banks and credit unions offer a variety of commercial real estate loans, including multifamily properties. These loan programs cater to a wide range of investment property types and grant investors significant flexibility.

Multifamily CMBS loans cater to various investment properties, spanning residential, commercial, and industrial sectors, with loan sizes typically ranging from $1 million to $1 billion.

When it comes to multifamily mortgage loans, understanding the underwriting requirements is crucial for a successful loan application. To qualify for a multifamily mortgage loan, you'll need to meet the property requirements, which include a minimum of 5 units for multifamily properties and 50+ pad sites for manufactured housing communities.

The property types that are eligible for multifamily mortgage loans include market rate apartments, affordable housing, senior housing, student housing, cooperative housing, and manufactured housing communities. You'll also need to ensure that the property is located in a primary or secondary MSAs (populations of 200,000+) with some exceptions for tertiary markets.

A strong occupancy rate is also essential, with at least 90% occupancy for 90 days prior to funding for completed properties, and 75% physical occupancy for newly constructed or renovated properties. The loan amount must be at least $750,000, although most lenders start at $1 million.

Here are the key property requirements for multifamily mortgage loans:

The borrower requirements for multifamily mortgage loans also play a crucial role in the underwriting process. To qualify, you'll need to have experience in the field, unless a waiver is granted. You'll also need to have a net worth equal to the loan amount requested, and liquidity of 9-12 months debt service (after any required cash injections). A FICO score of 680+ with no recent credit events is also required.

Pricing is a crucial aspect of multifamily mortgage loans. The longer the term, the higher the rate.

Fannie Mae loans have a 3-tier pricing structure based on LTV and DSCR, with approximately a 0.2% rate change between each tier. This means that even small changes in these factors can impact your loan rate.

Properties with affordable rents are eligible for discounts. This is a great incentive for developers who prioritize affordability in their projects.

Discounts are also given to properties located in primary MSAs. This is a common consideration for investors who want to minimize their costs.

Loan amounts above $2 million can also qualify for discounts. This is a significant advantage for larger projects or those with higher loan requirements.

Properties with 5-50 units are eligible for discounts, making them a more attractive option for smaller multifamily developments.

On the other hand, properties in tertiary markets may face premiums if approved. This is a factor to consider for investors who want to minimize their costs.

Amortizations can be shorter for older properties or those in tertiary markets. This can be a benefit for developers who want to pay off their loans faster.

Tier 3 & 4 loans may qualify for interest-only loans, but this comes with a small increase in interest rate. This option can be beneficial for developers who want to reduce their monthly payments.

Declining prepayment penalties can add additional spread to the rate. This is something to consider for developers who may need to refinance their loans in the future.

Rate discounts or additional proceeds are available for "Green" properties. This is a great incentive for developers who prioritize sustainability in their projects.

Fannie Mae offers a range of interest rates for multifamily mortgage loans through their DUS program.

The fixed rates for Fannie Mae DUS loans vary by term, with a 5-year term offering rates between 5.34% and 5.38%, and a 7-year term offering rates between 4.98% and 5.02%.

Here's a breakdown of the interest rates for Fannie Mae DUS loans by term:

The maximum loan-to-value ratio for Fannie Mae DUS loans is 80%, and the maximum amortization period is 30 years.

Fannie Mae's DUS program is a popular option for multifamily mortgage loans, offering competitive interest rates and flexible loan terms.

The pre-closing due diligence process for multifamily mortgage loans can be a bit more involved than conventional mortgages, but it's still a straightforward process.

The Fannie Mae process is similar to CMBS and Freddie Mac loan application processes, and it involves pooling mortgages together and selling them as bonds to investors.

Loans typically close 45-60 days after the application and deposit have been furnished to the lender, which is a relatively standard timeframe.

The due diligence deposit can range from $8,500-$10,000 for small loans and $15,000 for DUS loans, covering the costs of various reports and inspections.

The deposit doesn't include the legal costs for closing and securitizing the loan, which can add another $6,000-$12,000 to the overall cost.

Borrowers can expect to spend around $15,000 for small balance loans and $25,000 for DUS loans, excluding title, escrow, and doc stamp taxes.

The due diligence items required to close the loan typically include an appraisal, environmental engineering report, structural engineering report, zoning report, and lender and agency inspections.

To secure a multifamily mortgage loan, you'll need to provide a comprehensive set of borrower documents. These documents help lenders assess the creditworthiness and financial stability of the borrowing entity.

The Borrowing Entity Credit Authorization Form is a crucial document that grants lenders permission to verify the credit history of the borrowing entity. This form is usually signed by the entity's authorized representative.

You'll also need to provide a Borrowing Entity Financial Statement, which must be dated within the past 12 months of the commitment date. This statement provides lenders with a snapshot of the entity's financial health.

Lenders will also require Borrowing Entity Liquidity Verification, which involves reviewing the entity's bank and investment statements from the past two months. This helps lenders understand the entity's cash flow and liquidity.

A Borrowing Entity Property Questionnaire is also necessary, which provides detailed information about the properties being financed.

In addition to these documents, you'll need to provide a Borrowing Entity Schedule of Real Estate, which lists all the properties owned by the entity.

A Borrowing Entity Organizational Chart is also required, which outlines the management structure and ownership percentages of the entity. This helps lenders understand the entity's governance and ownership structure.

Lastly, you'll need to provide Borrowing Entity Organizational Documents, which include the entity's articles of incorporation, bylaws, and other governing documents.

Here's a summary of the required borrower documents:

To secure a multifamily mortgage loan, you'll need to provide key documents related to the principal guarantor. These documents are crucial for lenders to assess the creditworthiness of the guarantor.

A Contingent Liabilities Statement is required to disclose any potential financial obligations that may impact the guarantor's credit. This statement helps lenders understand the guarantor's overall financial situation.

Key Principal(s) Credit Authorization Form(s) must be completed to authorize the lender to verify the guarantor's credit history. This form is a standard requirement for all multifamily mortgage loans.

A Key Principal(s) Financial Statement, dated within 12 months of the commitment date, is necessary to demonstrate the guarantor's financial stability. This statement should be up-to-date and reflect the guarantor's current financial situation.

Key Principal(s) Liquidity Verification, consisting of two months' bank/investment statements for each guarantor, is required to assess their liquid assets. This verification helps lenders understand the guarantor's ability to meet financial obligations.

A Key Principal(s) Questionnaire is used to gather additional information about the guarantor, including their business experience and financial goals. This questionnaire helps lenders understand the guarantor's motivations and risk tolerance.

Key Principal(s) Resume is a required document that highlights the guarantor's professional experience and qualifications. This document helps lenders understand the guarantor's ability to manage a multifamily property.

A Key Principal(s) Schedule of Real Estate is necessary to disclose any existing real estate holdings or investments. This schedule helps lenders understand the guarantor's overall real estate portfolio.

Key Principal Entity(s) Organizational Documents, such as articles of incorporation or partnership agreements, are required to verify the guarantor's business structure. This documentation helps lenders understand the guarantor's business operations and ownership structure.

Here are the key principal guarantor documents in a concise list:

When securing a multifamily mortgage loan, the lender will typically require documents from the Principal/Sponsor (Non-Guarantor). This is a critical step in the loan application process.

The Principal/Sponsor documents required by the lender include financial statements, credit authorization forms, and schedule of real estate. These documents provide valuable information about the Principal's financial situation and ability to repay the loan.

The lender requires a Principal/Sponsor financial statement that is within 12 months of the commitment date. This statement should provide a clear picture of the Principal's financial health.

In addition to financial statements, the Principal/Sponsor must also provide credit authorization forms. This document gives the lender permission to verify the Principal's credit history.

The Principal/Sponsor schedule of real estate is also required by the lender. This document lists the Principal's properties and provides valuable information about their real estate holdings.

To verify the Principal's liquidity, the lender requires two months of bank/investment statements for each principal. This information helps the lender understand the Principal's ability to repay the loan.

Here is a summary of the Principal/Sponsor documents required by the lender:

When underwriting a multifamily mortgage loan, lenders require a range of property-related documents to assess the property's value and potential risks.

A Capital Improvements Schedule is typically required, detailing any improvements made to the property over the last three years, including descriptions, quantities, and costs.

To ensure accurate financial projections, a Trailing 12-Month Operating Statement is necessary, including all income and expenses, such as rental, laundry, and parking revenue.

Monthly operating statements should be sent up to and including the month of closing to provide a comprehensive view of the property's financial performance.

Year-to-Date and Prior 3 Years Operating Statements are also required, including all income and expense details, to demonstrate the property's historical financial performance.

A Pro-forma/Budget for the next 12 months is necessary to forecast the property's future financial performance and ensure it aligns with the lender's requirements.

The following documents are also typically required:

Multifamily mortgage loans are funded by the originating lender, then pooled together and sold to investors as mortgage-backed security bonds.

Fannie Mae guarantees timely payment of principal and interest to the MBS certificate holders, providing a level of security for investors.

A multifamily MBS may be backed by fixed-rate mortgage loans or adjustable-rate mortgage loans, but not both within the same offering.

Fannie Mae issues Discount Mortgage-Backed Securities (DMBS), which are non-interest bearing securities having terms of one year or less and purchased at a discount.

For multifamily properties, there are various mortgage loan options available, each with its own unique features and requirements.

A Fixed-Rate Mortgage is a popular choice for purchasing or refinancing existing, stabilized properties, including traditional, affordable, and manufactured housing communities.

Maximum LTV for a Fixed-Rate Mortgage purchase is 80%, while refinances have a maximum LTV of 75% with a 1.25x DSCR requirement.

Loan terms for a Fixed-Rate Mortgage range from 5-15 years.

The Structured Adjustable-Rate Mortgage is another option for purchasing or refinancing existing, stabilized traditional and manufactured housing communities.

This product has a minimum loan amount of $25 million and a maximum LTV of 75%, with a minimum DSCR of 1.0x and loan terms ranging from 5-10 years.

The Adjustable Rate Mortgage 7-6 product offers a 7-year loan term with a 1 year lock-out period and a 1% prepayment premium thereafter.

Maximum LTV for an ARM 7-6 purchase is 80%, while refinances have a maximum LTV of 75% with a 1.00x DSCR requirement at the loan cap rate.

The M-PIRE Mortgage provides financing for energy and water efficiency renovations in New York City's five boroughs, with a maximum LTV of 85% for purchases and 80% for refinances.

For Supplemental Loans, the maximum LTV is 75% and minimum DSCR is 1.30x, with the option for early rate lock available for a fee.

New third-party reports may not be required for Supplemental Loans, making the process more efficient.