What Is a Multifamily Mortgage?

A multifamily mortgage is a type of mortgage loan that is used in order to purchase a multifamily property. This type of mortgage can be used to finance the purchase of any type of housing structure that is bigger than a quad-plex. This type of mortgage works differently than a traditional mortgage and it makes it possible for real estate investors to get involved in the market.

Multifamily Mortgage

As a real estate investor, using a multifamily mortgage makes a lot of sense. Instead of having to come up with the entire amount of cash for the purchase of an investment property, you can utilize a multifamily mortgage instead. The benefit of using "other people's money" is that it lowers the amount of risk that you are taking on for this project. If things do not work out, you are not going to be the one that loses out on all of the money.

Down Payment

In order to qualify for this type of mortgage, you need to come up with a down payment. Most lenders will require you to have a more substantial down payment than you would with a traditional residential mortgage. This type of project, you should expect to pay at least 20% in cash for a down payment on the property. Some lenders will want even more than that for a down payment. A down payment of 30% is common for this type of loan. Commercial lenders know that this type of deal is very risky and they want to know that you have some money put into the deal as well. When you have money from your own pocket involved in an investment, you will generally be much more active in the management of the property. 

Terms

The terms of the multifamily mortgage can vary greatly from one lender to the next. Some loans may only last for 10 to 15 years. Other loans will provide you with as much as 30 years to pay them off. You can also get fixed rate loans or interest only loans. With a fixed loan, you will pay a certain amount of principal and interest with each payment. With the interest only loan, you will make only interest payments during the majority of the loan. Then you will have to come up with a balloon payment that is equal to the total amount of the loan at the end of the term.

Some multifamily mortgages have an adjustable interest rate while others have a fixed rate. If you get an adjustable-rate, it will be tied to a financial index that fluctuates up and down. If this is the case, your payment will generally change on an annual basis based on the movement of the underlying financial index. As an investor, you should try to get a fixed rate loan in most cases because you know how much the payment will be every year. 

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