Multifamily financing is a financial product which is designed to help people finance the purchase, renovation, or construction of multifamily housing. The definition of multifamily housing varies, depending on the lender and regional laws, but generally includes properties with four to five or more units. There are a number of ways in which people can use multifamily financing, and many lenders offer some form of this financing to their customers.
A classic use of this type of financing is a mortgage which is used to buy a multifamily property for the purpose of generating rental income. Multifamily financing can also be used by people who wish to develop a property to create multifamily housing, or by people who own properties which need renovations. Getting financing may enable people to perform more substantial renovations than they would be able to afford on their own. In all cases, the bank's requirements for eligibility can vary depending on the bank and the region where someone is trying to obtain financing.
Requirements for extension of multifamily financing vary. Many lenders require people to show adequate proof of income to support the loan, and the property may need to meet certain requirements as well. For example, banks may be reluctant to extend a loan to someone who owns a building in which units lack full bathrooms or kitchens. Because multifamily properties can be substantially more expensive than single family dwellings, the risk for the bank can increase significantly when offering this type of financing, and as a result, banks are more cautious.
People can also use multifamily financing to purchase units within a multifamily property, as when people buy an apartment in a cooperative or condo association, or when people buy units in a building of multifamily apartments. This type of financing can be tricky, as there are some unique needs to consider before offering a loan to someone purchasing, refinancing, or refurbishing a unit within a larger building or property.
It is not uncommon for multifamily financing to involve partners, with the assumption that one person cannot take on all the financial risk or costs associated with the financing. In these cases, all of the partners involved in the deal will be reviewed by the bank to determine whether or not they meet the bank's lending requirements, and banks may put some additional restrictions into place to avoid situations such as being left with the mortgage when a partnership dissolves acrimoniously.
