Multifamily homes are becoming a more and more popular option for residency in the United States. There are about 44 million homes like this across the country.
With the housing market going up as much as it has in the last few years, some people may look at multifamily homes as a more feasible option. That could be a good real estate investment opportunity for those looking for an investment property.
However, buying a multifamily property may come with its own set of challenges. The main challenge could be securing enough money for this property.
What are your multifamily financing options? This guide breaks it down.
Down Payments for Financing a Multifamily Property
The first thing you will want to think about is the down payment. That is because this is generally the minimum requirement to buy a property.
You could be looking at a multifamily property that is worth $500,000. However, you do not have to pay for this entire thing at one time. What you need is enough money for the down payment and assurance that you have the money to pay the rest.
You can start by trying to secure the down payment. This can range from as little as 3% to whatever percentage of the property that you can pay. Typically, it is good to put at least 20% down on a property to avoid PMI charges.
In this situation, that means coming up with about $100,000 as a down payment for this property.
Increasing Your Credit Score
Another thing you can do to improve your chances of getting a decent loan is to work on your credit score before applying for a loan. This can determine what interest rate you have to pay, your maximum credit line, and if you even get approved at all.
Your credit score gives lenders an idea of how reliable you are when it comes to paying the loan back. They want to see that you can keep up with payments and that you have relatively little debt elsewhere.
In the United States, the average credit score is 714. The maximum credit score you can have is 850, so make of this what you will.
What you have to do is find out what your current credit score is. If it is under 700, you may want to work on that before applying for this type of loan.
Things you can do to increase your credit score are paying off any outstanding debts that you have, keeping up with your monthly payments, and avoiding opening too many credit lines at once. That last one is especially important to avoid right before applying for this type of loan.
Once you do that and start seeing your score move up, that could give you better odds of getting approved for the loan in general and even getting better terms for that loan.
Secure Partners for Financing a Multifamily Property
Something else that you can do to try to improve your chances of getting approved for a loan is to find a reliable partner for your investment. This likely means giving them a percentage of the property that you intend to invest in.
However, if you find the right partner, there are a few benefits to going this route. The first is that you can have a reliable name on the signature of loan and ownership documents. Lenders may look at this person as more dependable to give money to if you do not have the best credit or investment history.
The other thing you have to consider is the finances. A partner may be able to bring in a lot more equity for your project. As a result, your group has more skin in the game in the eyes of a lender.
That is something lenders like to see and for you, it could mean that you do not have to ask for as big of a loan. Remember, make sure this is a partner that can bring something to the table such as equity as well as someone that gives you a better chance of securing financing for a multifamily property.
Get a Private Loan
Finally, you do have the option of securing a private loan for this type of investment. The good part about this is that this type of lender has its own rules for what they want to see from a borrower. So, if you are someone that has had trouble getting a loan from a traditional bank, this may be a good option for you.
The exact terms will differ here depending on what lender you use. An example of something a lender may offer is a loan amount of up to 80% of the LTC (loan-to-cost). They can also offer things such as a certain amount of years to pay the loan, a certain credit score to qualify you, as well as specific rates.
You are going to have to ask this type of lender directly about your specific situation.
Invest in a Multifamily Property
These are some of the things that you need to consider if you are trying to secure a loan for a multifamily property investment. Coming up with the down payment is going to be your first big hurdle.
You need to look into this and make sure that your credit score is sufficient before applying for a loan. If you are not comfortable with your current position there, you should try to find a reliable partner or even seek out a private lender.
Are you ready to get started? Apply here to see if you get approved for your ideal loan.