7 Best Rate Multifamily Mortgages

By Terry Painter, Mortgage Banker

Member of the Forbes Real Estate Council

Author: The Encyclopedia of Commercial Real Estate Advice – a WILEY book – OUT NOW!

 

What are the best Apartment Multifamily loans in America? Which programs have the lowest rates and highest LTV’s?  What about interest only and prepayment penalties?  What does it take to qualify? Which programs require tax returns. Which apartment loan programs are assumable? Based on their rates, terms, and feedback from our clients these programs are ranked number 1–17.

The best Multifamily Loan Program based on rate and terms is HUD/FHA, featuring a fully amortizing 35 year non recourse fixed rate that is lower than most banks’ 10 year fixed. Next is Fannie Mae Green Program with fixed rates from  5 – 30 years and amazing terms. Freddie Mac has the best full term interest only program and the best rates in larger cities.There are some great regional bank apartment loan programs with low rates and expenses as well. Here are the 17 best Multifamily Loans:

 

1. HUD/FHA 223F for Refinance Purchase and Light Rehab

I did my first HUD loan in 1999 for a retired San Diego doctor and his wife who did not want to ever have to refinance their 34-unit apartment building again. The loan would be a fully amortizing 35-year fixed rate so they would be about 107 when the loan matured and was paid off. They also wanted non-recourse so they could pass the property and the loan on to their children for estate planning, knowing that their kids would never have to shop for another loan before it was paid off. They fell in love with this loan, but not the process.

 

You might be tearing your hair out before you complete this loan, but if you are going for the long buck as the couple mentioned above was, this loan program cannot be beat.  This loan has the most work and takes the longest of any commercial loan to close, but what you get, oh my God, what you get is well worth the time and effort. Yes, you really can fix an interest rate on this multifamily loan program for 35 years with a 35 year amortization and the interest rate is going to be lower than most banks’ 5 – 10 year fixed programs. And if the rate ever goes down again, you can refinance for a moderate cost. What also makes this loan program number one is that it is easier to qualify for if you are a less affluent borrower. Most bank and government commercial loan programs require that the borrower have a net worth at least equal to the size of the loan, excess income showing on tax returns, and plenty of money left in savings when the loan closes. There is no net worth to loan ratio or debt to income ratio done on a HUD loan.   HUD doesn’t even specify a requirement for post-closing cash, but prefer that you are not broke when their loan closes. HUD just requires that you have good credit with no tax liens, but does not even specify a credit score. No income taxes are collected and your personal income is not a factor at all. HUD will not work for properties that are less than 3 years old. Thee limiting feature is the time it takes to close – about 6 months, tons of paper work, and higher than average closing costs. But if you plan on keeping the property forever, you will make it all up by never having to refinance again.

 

 Top Hud 223F Features

• Minimum loan size is $2,000,000, and there is no maximum loan size.
• Fixed rate period of 30 to 35 years, based on how many years the buildings have left in useful life
• Maximum loan to value of 85% for purchasing a property and refinancing a property, 80% if cash out. Cash out allowed for any reason
• No Tax Returns Required
• Non Recourse
• 1.176 Debt Service Coverage Ratio (one of the lowest around)
• 90% occupancy required for 90 days
• Good Credit Required, but no credit score specified
• No Income verification
• Assumable with a ½ point fee
• Rates are especially low, but there is the requirement of mortgage insurance premiums that need to be paid along with the mortgage.
• No post closing requirement specified, but you cannot be broke when the loan closes
• Declining prepayment penalty for the first 10 years

For More on the HUD 223F Multifamily Loan Program – see HUD FHA Apartment/Multifamily Loans/Financing

 

2. Fannie Mae Green Program

What makes this program so attractive is that going green on your apartment building can lower your interest rate about a third of a percent. On a million dollar loan this is a savings of $300 monthly. None of the green upgrades are very expensive, and you have a lot of time to implement them. One of them is putting in energy-saving light bulbs. Another is water reduction showerheads.  Otherwise, you get great low rates that can be fixed for up to 30 years.

 

Fannie Mae Green Program Features

• Works best for older B and C properties that have fewer green upgrades
• Minimum loan size is $1,000,000, and there is no maximum loan size.
• Fixed-rate period of 5 – 30 years
• Maximum loan to value of 80% for purchases and 75% for refinances
• No Tax Returns Required
• Non Recourse
• No Income Verification
• Assumable with a 1 point fee
• 1.25 Debt Service Coverage Ratio
• 90% occupancy required for 90 days (can get a waiver on this in high occupancy markets)
• 680 minimum credit score
• Net worth equal to loan size
• 9 months mortgage payments for post-closing cash required
• Yield maintenance or declining prepayment penalty

For more on the Fannie Mae Multifamily Loan Program, see Fannie Mae Apartment/Multifamily Loans

 

3. Best Multifamily Full Term Interest Only Loan

Freddie Mac has the best interest only program. Why? Because you can get full term – up to 10 years of fixed-rate interest only payments with a minimal increase to the rate. Almost all lenders increase the interest rate for interest only. Most loan programs only allow from between 2 – 4 years of interest only payments and then the loan switches to amortizing payments. On a million dollar loan at 5% interest and a 30-year amortization your monthly payments will be $5,368. Your interest only payments at 5.00% interest will be $4,166. Interest only will give you $1,202 more monthly, or $14,424 annually in net cash flow. On the down side, rates on this program will be higher in smaller MSA’s.

If you do not want interest only payments because you want to reduce your principal balance every month, then you can opt out of this and get the same great loan with a lower rate.

 

Freddie Mac Full Term Interest Only Multifamily Loan Features

• Minimum loan size is $1,000,000, and there is no maximum loan size.
• Fixed-rate period of 10 Years. Option to convert to an adjustable rate mortgage for another 10 years if you want a 20 year term loan.
• Maximum loan to value of 80% for purchases and refinances
• No Tax Returns Required
• No Income Verification
• Assumable with a 1.00% fee
• Non Recourse
• 1.25 Debt Service Coverage Ratio
• 90% occupancy required for 90 days (can get a waiver on this in high occupancy markets)
• 680 minimum credit score
• Net worth equal to loan size equal to the loan amount
• 12 months mortgage payments for post-closing cash required
• Yield maintenance or declining prepayment penalty

For more info on the Freddie Mac Multifamily Loan Program, visit Freddie Mac Apartment/Multifamily Loans/Financing

 

4. HUD 221(d)4 Multifamily Construction Loan

Yes, this is another HUD commercial loan and yes, it does take a lot of time and paperwork. If you are a developer of Apartment Buildings and planning another project, a HUD Construction Loan is one of the very best construction loan programs available in America. Why?  Well to start out with, when you lock one of the lowest construction loan rates, this also becomes your perm loan rate. Just think about not having to worry about what perm loan rates will be in 18 to 24 months after you start construction. Unbelievably, this is is a 2-year construction loan roll over to a 40-year fixed-rate fully amortizing perm loan. And, to top this off the loan is non-recourse. You just need to have the land under contract when you first apply. If you need to raise investors, well, there is plenty of time for that.  Which brings up the least desirable feature - it takes 8 months to close. But for many developers the positive features make this worth the time. Especially if you are not shovel ready and still need to get the property entitled.

  

   221(d)4 Multifamily Construction Loan Features

• Minimum loan size is $3,000,000, and there is no maximum loan size, however loans over $25,000,000 are scrutinized more
• Perm Loan Rate is fixed for 40 years with a 40 year amortization
• Maximum loan to cost of 85%, 87% for Affordable Housing. There is no loan to value.
• No Tax Returns Required
• No Income Verification
• Assumable with a ½ point fee
• Non-Recourse
• 1.176 Debt Service Coverage Ratio (one of the lowest around)
• Rates are especially low, but there is the requirement of mortgage insurance premiums that need to be paid along with the mortgage.
• No net worth to loan ratio
• No specification for post-closing liquidity
• Declining Prepayment Penalty

For more about Multifamily Construction Loans, see Construction Loans/Financing - Apartment/Multifamily

 

5. Regional Bank Multifamily Program

What makes this loan program so desirable is the low rates, and low loan expenses combined with the ability to lock your rate at application.Most commercial loan rates are locked at loan approval which is about a month after you apply. Rates can change quite a bit in that month. Speed is another benefit with the average closing time 40 – 45 days

 

Regional Bank Multifamily Program Features

• Minimum loan size is $1,000,000, maximum loan is $12,000,000
• Fixed-rate period of 3 – 10 years
• Maximum loan to value of 75%
• Tax Returns Required
• Income verified
• Not Assumable
• Recourse
• 1.20 Debt Service Coverage Ratio
• 85% minimum occupancy required, or enough occupancy to cover the debt service coverage ratio.
• 680 minimum credit score, 700 and above is preferred
• Net worth equal to loan size
• 12 months mortgage payment for post-closing cash
• Declining prepayment penalty for the first 10 years

 

6. Ready for Freddie Bridge to Perm Multifamily Loan Program

I like the sound of this one. For multifamily properties that need rehab or repositioning (raising rents over time), and the borrower intends to keep the improved stabilized property and will need a perm loan as well. This is a very low cost bridge loan that rolls over seamlessly to a very high quality Freddie Mac permanent loan.The bridge loan interest rate is between 6.00% and 7.00% with a two year term.

 

Ready for Freddie Multifamily Loan Features

• Minimum loan size is $1,000,000, maximum loan is $6,000,000
• Bridge Loan Term: 2 years, Perm loan Term: 5 – 20 years
• Maximum loan to value of  75% of cost and 75% of stabilized completed value
• Tax Returns Not Required
• Non-Recourse
• No Income Verification
• 1.25 Debt Service Coverage Ratio when stabilized
• No minimum occupancy required
• 660 minimum credit score
• Net worth equal to loan size
• 12 months mortgage payment for post-closing cash
• No prepayment penalty for the bridge loan. Declining or yield maintenance prepayment penalty for the perm loan. 

 

7. Best Rate Low Leverage Multifamily Loan

If you only need a 55% loan to value loan or less, and your apartment building is 50 units or less and your debt service coverage ratio is 1.55 or higher, we can take about half of a point off your interest rate with our Low Leverage Fannie Mae Multifamily Loan Program. This is an exceptional savings. If you want to combine this with the Fannie Green program, the interest rate savings will be even better.

 

Best Rate Low Leverage Multifamily Loan Features

• Minimum loan size is $1,000,000, maximum loan is $6,000,000
• Bridge Loan Term: 2 years, Perm Loan Term: 5 – 20 years
• Maximum loan-to-value of  75% of cost and 75% of stabilized completed value
• Tax Returns Not Required
• Income Verified
• Not Assumable
• Non-Recourse
• 1.25 Debt Service Coverage Ratio when stabilized
• No minimum occupancy required
• 660 minimum credit score
• Net worth equal to loan size
• 12 months mortgage payment for post-closing cash

 

8. Best Poor Credit Apartment Loan Program

If you have a credit score below 660, or for that matter as low as 540 and you need an apartment building loan this is an exceptional perm loan program for you. Recent discharged bankruptcy and tax liens that are satisfied or will be satisfied when the loan closes are fine. In fact, you can pay off your tax liens and your credit card debt if you are refinancing with this program. What makes this program so exceptional is that it will be a much lower rate than hard money which is usually the only loan available for bad credit. You can fix the rate for 3 – 5 years with a 30-year amortization. Another great benefit is that you do not need to have a net worth equal to the size of the loan and you do not need to have much in post-closing cash – you can almost be broke when the loan closes. Furthermore, this is a stated income program. No tax returns will be collected and no debt to income ratio. On the downside, the interest rate will be priced to your credit score. So the lower your credit score the higher the rate. But this will still be better than hard money.

 

Best Poor Credit Apartment Loan Program Feature

• Minimum loan size is $500,000 Maximum loan is $5,000,000
• Loan term is between 3 and 5 years. Amortization 30 years
• Maximum loan to value of  75% loan to value
• Tax Returns Not Required
• Income not verified
• Full Recourse
• 1.25 Debt Service Coverage Ratio
• No minimum occupancy required (income must cash flow the size of the loan)
• 540 minimum credit score
• No Net Worth to Loan Ratio
• No post closing cash requirement
• Declining prepayment penalty

For more more on Bad/Poor Credit Apartment Loans, see Bad/Poor Credit Apartment/Multifamily Loans/Financing

 

 

9. Best Low-Rate National Bank Apartment Construction Loan

If you have a high net worth, great liquidity, and the subject property is in a larger city our extra low-rate national bank commercial construction loan could be the best for you.  The rate is as low as the 1 month libor rate plus 1.75%.  This puts the rate well under 5.00%.  On the downside this loan program only goes up to 70% of cost. (Click here for all Multifamily Construction Loan Programs)

 

Best Low Rate National Bank Apartment Construction Loan Features

• Minimum loan size is $5,000,000
• Maximum loan to cost 70%. 
• More than one source of income required
• Tax Returns Required
• Income verified
• Full Recourse
• 1.25 Debt Service Coverage Ratio when stabilized
• 720 minimum credit score
• Net worth equal to twice the loan size
• 20% cash required in post loan closing liquidity
• No Prepayment Penalty

 

10. Best Multiple Rental Property Loan

This loan is for income property investors that have five or more one to four unit residentially zoned properties and the value of each is $50,000 or more. The best feature is that the properties do not have to be contiguous. In fact they can be anywhere in the country. Also known as a blanket loan you can mix one or more apartment buildings that have 5 units or more into the mix. Income property investors who specialize in 1 – 4 unit residential properties know that it gets very expensive rate-wise to own more than 8 residential properties. This is the maximum investment properties you can currently finance with a low-rate conforming loan (meets Fannie Mae and Freddie Mac Guidelines). Rates on our best multiple rental property loan are reasonable again,  there is no limit to the number you can own. (Click here for more on Multiple Rental Property Loans)

 

Best Multiple Rental Property Loan Features

• Minimum loan size is $1,000,000   Maximum loan is $50,000,000
• Maximum loan to value: 75% 
• More than one source of income required
• No Tax Returns Required
• Income is not verified
• Non Recourse
• 1.25 Debt Service Coverage Ratio when stabilized
• 720 minimum credit score
• Net Worth to Loan Ratio negotiable 
• Negotiable post loan closing liquidity requirement
• Yield maintenance prepayment penalty

 

11. Best Five Million and Above Multifamily Bridge Loan

 If you are refinancing a property that needs a lot of work or purchasing a higher priced value-added property and need to rehab it or at a minimum remodel it and are then planning on holding the property, this loan has some amazing features. First, you can borrow up to 80% of the cost or up to 75% of stabilized appraised value. This can include the purchase, renovations and closing costs. Second, you get an amazing low rate. As low as the one month libor rate plus 3.50%. Once the property is stabilized, the loan converts seamlessly to a low rate Fannie Mae or Freddie Mac permanent loan. Ask us to negotiate an even lower rate for you on this one. I almost forgot to mention that this loan is non-recourse. (For the benefit of a non-recourse bridge loan see –  The Danger of Recourse Bridge Loans and the Death in Unit 146B)

 

Best Five Million and Above Multifamily Bridge Loan Features

• Minimum loan size is $5,000,000  Maximum loan is $100,000,000
• Maximum loan to cost 80%.  Maximum loan to value is 75%
• No Income verification
• Tax Returns are not required
• Non-Recourse for both Bridge and Perm loans
• 1.25 Debt Service Coverage Ratio when stabilized
• 680 minimum credit score
• Net worth equal to the size of the loan
• 12 months post closing cash required
• No prepayment penalty

                                                                                    

12. Best Affordable Housing Loan – HUD/FHA

Yes, another HUD loan is being featured as best. If you are planning on buying, selling or building an affordable housing multifamily property, HUD has the best program. To qualify the property has to have 25% of the units at 60% of AMI (Area Medium Income) or 20% of the units at 50% of AMI. This program is for new construction, substantial rehabilitation or purchase/refinance of existing apartment complexes. Tax credit programs are acceptable and encouraged.

What makes this program so good is the very low 35-year fixed-rate perm loan – 40 years for new construction.

 

HUD/FHA Affordable Multifamily Loan Program Features

• Minimum Loan:  $5,000,000 for New Construction, $3,000,000 for purchase or refinance of existing multifamily properties
• LTC and LTV: Up to 87% of Cost for New Construction with no LTV calculated, or up to 87% LTV for the purchase or refinance of existing multifamily properties. Existing properties must be at least 3 years old
• DSCR:  1.15  w  1.11 for properties with 90% or greater rental assistance
• Term:  40 Years for New Construction, 35 Years for Existing Multifamily properties
• Amortization: 40 Years for New Construction, 35 Years for Existing Multifamily
• Interest Rate:  Low rate tied to the 10 year US treasury yield fixed for 40 years for New Construction and 35 Years for Existing Multifamily.
• Occupancy Requirement:  90% for 90 days for existing properties
• Recourse:  Non-Recourse Loan
• Assumable:  Yes subject to FHA approval and a ½% fee
• Prepayment Penalty:  Declining for the first 10 years

(To View all of our Affordable Housing Loan Programs Click Here)

 

13. Best Non Recourse Multifamily Loan For Your IRA

Can you imagine the benefit of investing your retirement fund into an apartment building instead of the stock market? For starters, your investment will be less volatile and you will not be glued to your smart phone for stock updates. Secondly, the return will go up as your rents are raised over time. Rents always seem to go up and so do property values. This will only work for self-directed IRA’s. The government does not allow you to take out recourse financing when your retirement fund is used. Non-recourse puts your retirement at a much lower risk. In addition, to keep your risk low, lenders only go to up to 65% loan to value. 50% to 60% is preferred. Also a higher Debt Service Coverage Ratio is preferred:  1.35 to 1.45   (Non Recourse loan product Pillar Article)

 

Best Non-Recourse Multifamily Loan For Your IRA Features

• Loan Size $1,000,000 to $6,000,000
• Fixed rate period of 5 – 10 Years
• Maximum loan to value of 65%
• Tax Returns Required
• Non Recourse
• Income Verification
• Not Assumable
• 1.45 Debt Service Coverage Ratio
• 90% minimum occupancy
• 700 minimum credit score
• Net worth equal to loan size
• 10% of the loan amount preferred in post-closing liquidity
• Declining prepayment penalty

 

14. Best Life Company Multifamily Loan

Although this loan only goes up to 70% Loan to Value, it is packed with great features.  Interest rates are lower than Government Agency loans like Fannie Mae and Freddie Mac. Some interest-only can be added if you like. Furthermore, you have many options on fixed rate terms. If you want a very low 25-year fixed-rate loan with a 25 year amortization and term, this can be done. Alternatively, you can choose a 15 year fixed rate and term with a 30 year amortization or a 20 year fixed rate and term with a 20 year amortization. Often a bridge loan can be arranged for a property in a great neighborhood that needs rehab or repositioning. The bridge will convert seamlessly to a very high quality perm loan. These loans are only done in larger MSA’s and are non-recourse.

 

Works best for newer A and B properties

• Loan size is $10,000,000 to $150,000,000
• Fixed-rate period of 10 – 25 years
• Maximum loan to value of 70%
• Tax Returns Required
• Non Recourse
• Income Verification
• Assumable with a 1 point fee
• 1.35 Debt Service Coverage Ratio
• Minimum 90% occupancy required for 90
• 680 minimum credit score
• Net worth equal to 1.5 times loan amount
• 15% of loan amount for post-closing cash required
• Prior Multifamily Ownership experience required
• Yield Maintenance or defeasance prepayment penalty

(See Yield Maintenance - What is it?)

 

15. Private Money Multifamily Construction Loan

This is a great loan product for a developer that owns a great piece of land in a great location in a larger city and has been turned down by banks for a multifamily construction loan. Ground-up construction loans represent the largest risk for a bank and they have stringent requirements to counter this. Maybe the bank did not like that the developer and the general contractor are one and the same. Maybe they were worried that the developer had another project going at the same time. But most likely the developer just does not have the financial strength to qualify. Although more expensive, our private money construction loan is made to the strength of the deal first and the experience of the development team second. This loan can come together fast and with much less red tape than a conventional construction loan. This loan is non-recourse which can really help if you are raising investors. (Click here for more apartment construction loan programs)

 

16. Our Best Multifamily CMBS Loan

If you have a very solid property, but are not the strongest borrower—but want rates that are almost as good as the high net-worth investors get, this could be the loan for you. This commercial mortgage backed security loan is bundled with other loans with the same maturity and sold has a mortgage back security bond to investors.  Although this loan has higher rates than a Fannie or Freddie, the loan is made more to the quality of the property than the quality of the borrower.  And as mentioned, the rates are comparable to bank commercial loan rates. So if you have a mediocre credit score with a good story, and less than a one-to-one net worth to loan ratio, this might be the best loan for you. If you do not have great current income, this loan is stated in nature and does not require tax returns or a debt to income ratio. Rates can be fixed for 5 or 10 years with a 30 year amortization. For stronger deals, a few years of interest-only can be negotiated. Best of all, this loan is non-recourse but will allow for lower borrower strength than most non-recourse loans. (For more on CMBS Loans – Click Here)

 

Our Best Multifamily CMBS Loan Features

• Minimum loan size is $1,500,000, Maximum Loan size is $50,000,000
• Fixed-rate period of 5 or 10 years
• Maximum loan to value of 75% for purchases and 75% for refinances
• Cash out ok for any reason
• No Tax Returns Required
• Non Recourse
• No Income Verification
• Assumable with a 1 point fee
• 1.25 Debt Service Coverage Ratio
• 90% occupancy required for 90 days (can get a waiver on this in high occupancy markets)
• 660 minimum credit score
• Net worth to loan ratio negotiable
• No set post-closing liquidity requirement
• Yield maintenance or defeasance prepayment penalty

 

17. Freddie Mac Mixed Use Property Loan

A mixed use commercial building has a minority of commercial space usually on the first floor and a majority of apartment multifamily units on the upper floors. Most lenders specify how much in terms of total net rental income and square footage the commercial space can be. This ranges from a low of 20% to a high of 40%. This Freddie Mac program is number one for mixed-use because it allows the commercial space to represent up to 40% of the total net-rental-income and up to 40% of the buildings gross square footage. Another top feature is an 80% loan value for both refinances and purchase. Also, the interest rates are darn good and can be fixed for up to 10 years.  The interest only option adds to the quality of this program – from 2 to 10 years.  Additionally there is flexibility in the quality of the tenants and lease terms. On the downside, rates will be higher for properties in smaller MSA’s. (for more on mixed use property loans – Click Here)

 

Freddie Mac Mixed Use Property Loan Features

•  Minimum loan size is $1,00,000, Maximum Loan size is $50,000,000
• Fixed rate period of 5 or 10 years.  Term can be up to 20 years with the first 10 years being on a fixed rate and the  second 10 years being an adjustable rate.
• Maximum loan to value of 80% for purchases and 80% for refinances
• Cash out ok for any reason
• No Tax Returns Required
• Non Recourse
• No Income Verification
• Assumable with a 1 point fee
• 1.25 Debt Service Coverage Ratio
• 90% occupancy required for 90 days (can get a waiver on this in high occupancy markets)
• 660 minimum credit score
• Net worth to loan ratio negotiable
• No set post closing liquidity requirement
• Yield maintenance or defeasance prepayment penalty

 

By Terry Painter/President  Apartment Loan Store and Business Loan Store