Unlock the Essentials for Securing Your Multifamily Investment Loan
- 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.
- 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.
- 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.
- 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!