Multifamily Financing Overview

Unlock the Essentials for Securing Your Multifamily Investment Loan

1. Capital Stack Breakdown (money needed to buy a multifamily property):

• Senior Debt: 65-75% of the purchase price, low risk, secured first lien. Offered by banks, GSEs like Fannie Mae and Freddie Mac. Commonly associated with bank loans.
• Mezzanine Debt: Fills the gap between senior debt and equity, higher risk and return, secured by ownership interest.
• Preferred Equity: Paid after debt but before common equity, requires higher returns.
• Common Equity: Riskiest position, repaid last in liquidation scenarios, demands highest returns.

2. Key Financing Options:

• Government Sponsored Entities: Public departments that provide financing. They are Fannie Mae, Freddie Mac, the Federal Housing Administration, and the United States Department of Agriculture.
• Private Lenders: Includes conventional loans(banks), CMBS, and insurance mortgages with varying criteria and benefits.

3. The Loan Request Process:

• Credit Memo: Outline of the loan transaction reviewed by a Credit Officer.
• Document Preparation: Post-approval, documentation prepared by Loan Operations or external counsel.
• Closing: Final signing of loan documents through a title company or closing agent.

Pro Tips for a Smooth Loan Process:

• Be Prepared: Assemble a complete documentation package.
• Know the Numbers: Provide realistic projections and back them with data.
• Communicate Early & Often: Keep all parties updated throughout the process.

4. Understanding Loan Criteria:

• The Five Cs of Credit:
  • Character: Borrower’s reputation and credit history.
  • Capacity: Property’s income generation capability.
  • Capital: Borrower’s equity and Loan to Value (LTV) ratio.
  • Conditions: Property and market conditions.
  • Collateral: Property’s value and saleability.

• Maximum Supportable Loan Amount: This is how big of a loan a property can qualify for. It’s calculated using the Net Operating Income (NOI), Cap Rate, and Debt Service Coverage Ratio (DSCR).

Your Next Steps to Securing Financing:

• Gather all necessary documentation.
• Create pro forma projections and a solid business plan.
• Identify and approach potential lenders.
• Review and compare loan offers carefully.
• Close the deal with a thorough review of loan documents.

Ready to Master Multifamily Financing?

Unlock the secrets to successful multifamily real estate financing and streamline your loan process today!