Conventional Loans are available for multifamily apartment buildings with 5+ units. The interest rate is fixed for 3-10 years to ARM or balloon. Finance acquisitions to 75% LTV and 70% LTV for cash-out refinances. The property’s cash-flow is analyzed at 1.25% debt coverage by dividing the net operating income by the proposed payment. This type loan requires a minimum net worth equal to the loan amount, 10% liquidity, and a minimum credit score.
Small Balance Loans
Small Balance Freddie Mac Loans range from $1 to $5 million and are used for acquisition or refinance of up to 80% Loan-to-Value. The programs are available as 20-year hybrid ARM’s with initial 5, 7, or 10 years fixed, or as 5, 7, and 10 years fixed terms to balloon. Both programs are available with partial and full-term interest-only. This is a non-recourse loan meaning the borrower is not personally liable and therefore tax returns are not required to qualify. The loan is amortized over 30 years, assumable and must be 90% occupied for at least 90 days at application. Cash-flow is analyzed by dividing the net operating income by the proposed payment. There are minimum provisions for net worth, liquidity and real estate management experience needed to qualify.
Fannie Mae Loans
Fannie Mae Loans are used for acquisition or refinance of up to 80% Loan-to-Value. The programs are available with terms of 5-30 years, and with partial and full-term interest-only. This is a non-recourse loan meaning the borrower is not personally liable and therefore tax returns are not required to qualify. The loan is amortized over 30 years, assumable and must be 90% occupied for at least 90 days at application. Cash-flow is analyzed by dividing the net operating income by the proposed payment and varies by asset class and product type. There are minimum provisions for net worth, liquidity and real estate experience needed to qualify.
FHA HUD 223(f) Loans
FHA HUD 223(f) Apartment Loans are available for the acquisition and refinancing of 5+ unit multifamily properties. There is no income or rent restrictions under Section 223(f) unless otherwise required by a project based HAP contract or other regulatory agreement. This is loan is fixed for 35 years, or 75% of the remaining economic useful life (subject to PCNA report). Financing up to 83.3% LTV for market rate, 85% LTV for Affordable, and up to 90% or greater rental assistance. The loan is fully assumable subject to FHA approval. Furthermore, HUD insured mortgages are non-recourse, therefore no tax returns, or minimum liquidity is needed to qualify.
HUD FHA 221(d)(4) Construction Loans
HUD FHA 221(d)(4) Construction Loans are for substantial rehabilitation of Multifamily properties. The Interest-only term is equal to actual construction period plus 2 months for cost certification followed by 40 years fully amortizing. Financing is available up to 90% for subsidized projects and payment of prevailing wages is required, as determined by the Department of Labor, for all contractors and subcontractors. The loan is assumable, requires impounds for taxes, insurance, mortgage insurance, and replacement reserves. The construction loan rolls to permanent financing at the same rate. Great for reducing exposure to interest rate environment.
Stated Income Loans
Stated Income Loan is a mortgage where the lender does not verify the borrower’s income by looking at their pay stubs, W-2 (employee income) forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income. To minimize the risk of default the lender requires the borrower(s) to put down 40%, or refinance the asset to 60% Loan-to-Value.
Bridge Loan are short-term and temporary loans used to reposition an asset at higher than prevailing interest rates. The bridge loan is backed by real estate collateral. There is an interest only payment, usually good for 1-2 years with no prepayment penalty. This type of financing allows borrowers to meet current obligations by providing immediate cash flow. Borrowers must illustrate a clear exist strategy to the lender to pay back the bridge; this can be accomplished through a refinance, or the sale of the subject property for a profit after a rehab.
Construction Loans are recourse in nature. The bank examines the equity in the land, the construction budget and the financial strength of the borrower to issue credit approval. A minimum net worth equal to the loan amount, good credit, 10% liquidity, and a solid builder’s resume is key. Rates range depending on the financial strength of the sponsor, or borrowing entity, experience, equity, liquidity and LTV/LTC. A fund control company is assigned to allocate and distribute the funds according to the approved budget by the bank. The assigned fund control company inspects completed work prior to issuing payment to the owner or builder.