The Definitive Guide to Multifamily Loans

Are you interested in the multifamily property market? Multihousing investments reached a considerable $138 billion in 2020, as vacancy rates remain low (95%) and rent growth (10-15%) remains high.

Navigating the multifamily borrowing process is very different from other investment opportunities. Find out everything you need to get started in this comprehensive guide to multifamily loans.

What Are Multifamily Loans?

Multifamily loans are finance options for properties that have multiple living units. This includes several units in the same building, or attached buildings that share a wall.

Multifamily homes must maintain complete separate living spaces, including a full kitchen and bath. It does not include a single, detached building where multiple people share a kitchen and/or bath as a communal space.

Generally, any multifamily property with 5 units or more is considered commercial real estate. Properties with four units or less can be considered residential.

How to Qualify for a Multifamily Loan

Multifamily loans follow the same general requirements as other real estate and rental property loans. These include your:

  • Income sources
  • Debt sources
  • Debt-to-income (DTI) ratio
  • Credit score
  • Past bankruptcies
  • Down payment
  • Debt service coverage ratio

The lender will also evaluate the property according to:

  • Property type
  • Occupancy type
  • Rental rates
  • Appraised value
  • Loan-to-value

Your lender will consider all these factors and more for your loan terms. Some lenders have very strict and inflexible requirements, while others have more leeway to work with riskier borrowers and properties.

Types of Multifamily Properties

The multifamily housing type will affect your investment strategy. Both public and private lenders can have specific multifamily loan terms for different housing, including:

  • Min-max loan amounts
  • Loan rates
  • Underwriting requirements
  • Occupancy terms
  • Housing locations

Property types can also affect your investment, management, and rental income strategies. Managing a luxury high-rise apartment building, for example, will be very different from managing a dedicated student housing complex.


Apartments are multiple rented or leased units within a single building. There are generally managed by one main owner or company. Apartments have several variations:

  • Studios
  • Lofts
  • Walk-ups
  • Micros
  • Luxury
  • Senior and retirement
  • Penthouse
  • Garden
  • Converted
  • Low-rise (1-4 floors)
  • Mid-rise (5-11 floors)
  • High-rise (12 or more floors

Several apartment buildings grouped together under one community and management system are referred to as apartment complexes.

Apartments are very versatile. In an urban area alone, they can range from affordable units in downtown districts to luxury penthouses in city centers. They can also add amenity options like pools, exercise areas, and parks to attract tenants.


Condos are similar to apartments, except the individual units within the building are privately owned by the tenant. The communal areas are managed separately. This is usually by some form of collective action such as a condo owner association, HOA, or board of directors.

This allows condo dwellers to combine the perks of residential home ownership with the amenities of commercial rentals. Most buildings have a condo manager who is the focal point of contact for things like maintenance, repairs, and amenity upkeep.


Townhouses are a compromise between condos and single-family detached houses. They’re larger than a condo, with two or more stories and no units above or below them.

They share walls with the units on either side, however. When several uniformly designed townhouses are attached together along a street without a break, they’re referred to as rowhouses.

Townhomes can be rented, leased, or owned. They can also be managed under HOAs if there’s no rental property manager.

Duplexes, Triplexes, and Quadplexes

A duplex consists of two living units attached by a wall. Unlike townhomes, which tend to build vertically, duplexes more closely resemble single-family homes. From the street, they can look like a very large detached home with two separate entrances.

Triplexes have three connected units, and quadplexes have four. They allow renters to have all the amenities of a rental property, but generally with more yard and property space.

Student Housing

While student dormitories don’t fall under multifamily housing, many off-campus student housing buildings are set up similarly to apartments. Fannie Mae defines two main types of student housing:

  1. Student housing: Multifamily (5+ units) rentals with undergraduate or graduate students occupying between 40%-80% of the units
  2. Dedicated student housing: multifamily rentals with students occupying over 80% of the units

Student housing can consist of units that have:

  • One shared kitchen and dining area
  • One shared living room
  • One private master bedroom and bathroom
  • Two or more small private bedrooms and bathrooms

In this unit setup, each private bedroom falls under its own separate lease/rental agreement. This keeps vacancy rates more stable for student housing property managers.


Age-restricted multifamily housing is any property that specifically rents to tenants age 55 or older. This type of occupancy is protected under the Fair Housing Act, as long as it meets three criteria:

  • 80% or more of the units have one or more occupants aged 55+
  • Specifically managed for 55+ or older resident policies and procedures
  • Complies with HUD’s resident age verification requirements

These occupants usually come with fixed incomes in the form of retirement, social security, and pensions. Age-restricted housing is separate and distinct from assisted-living housing that provides increased health care and personal care services.


Federal and state governments offer investors many incentives and programs for low-income multifamily housing. Investment benefits for low-income housing include:

  • Selective tenant screening
  • Subsidized rent
  • Low vacancy rates
  • Faster vacancy turnover
  • Lower capital expenditures

Low-income housing usually has long waiting lists. This means on top of stable rental payments, you won’t have vacant units for very long.

Multifamily Property Classes

Real estate properties are divided into classes for investment and loan purposes. This can affect how your multifamily loan evaluates the risk and return on your investment.

Class A Properties

Class A refers to newer, more upscale properties. This generally includes properties built within the last 10-15 years or renovated up to modern standards.

These properties come with many high-end amenities like saunas and pet spas. They include luxury additions like high ceilings and marble countertops. They’re also in prime locations, such as top-quality school districts and/or low-crime areas.

Class B Properties

Class B refers to older properties within the 10-20 year age range. They are less upscale than Class A properties, and usually require more maintenance.

These properties may have some amenities and high-quality options, like dog parks and new appliances. They are generally located in good neighborhoods not far from prime real estate locations.

Class C Properties

Class B refers to properties 20 years or older. This property usually comes with significant maintenance, repair, and renovation costs. They may be located in areas considered high-risk for investment.

These properties are still attractive to investors, however, because they are priced far under market value. While the risk is much higher, they can also offer a high ROI opportunity for savvy investors.

Multifamily Loan Types

Multifamily loans can be government-backed, commercial, or through private lenders. You can also use portfolio loans that won’t get sold on the secondary market.

Like other loans, you have to balance your qualifications, investment goals, and loan terms when looking for a lender. FHA loans may have lower loan costs, for example, but very strict approval and housing management requirements.

FHA/HUD Backed Multifamily Loan

The FHA will insure qualifying multifamily loans for residential properties (4 units or less) and certain commercial property uses. To qualify for a residential loan, the property must be owner-occupied.

The HUD maintains the list of approved lenders. The advantages of an FHA-backed multifamily loan are as follows:

  • Competitive interest rates
  • Lower down payments
  • Lower closing costs
  • Less strict income requirements
  • Lower credit score requirements
  • More flexible DTI requirements

FHA multifamily loan limits are re-calculated every year, so it’s important to stay current with their requirements. The FHA also has several programs for constructing, refinancing, and rehabilitating multifamily buildings.

HUD multifamily loans are only offered to Native Americans and Alaskan Natives in eligible areas. This program is referred to as Section 184.

Fannie Mae and Freddie Mac Multifamily Loans

Fannie Mae and Freddie Mac guarantee multifamily loans with an approved lender. They are the largest operators in real estate’s secondary market.

Both financial institutions offer:

  • Conventional loans
  • Small balance loan programs
  • Senior housing loans
  • Student housing loans
  • Affordable housing loans
  • Green energy incentives

Similar to FHA loans, Fannie Mae and Freddie Mac loans are government-backed. This allows them to offer more competitive interest rates and other loan term costs.

CMBS Loans

Commercial Mortgage-Backed Securities can be a viable alternative to Fannie Mae and Freddie Mac, who have stricter lending requirements. CMBS loans are offered by:

  • Conduits lenders
  • Investment banks
  • Commercial banks

These loans have more flexible underwriting requirements for multifamily borrowers, because the loan is asset-based. The property and its profits are the loan collateral. CMBS loans are commonly re-sold on the secondary market.

Multifamily Bridge Loans

Bridge loans are short-term, temporary loans to help inventors generate cash flow while they apply for permanent financing. They’re especially useful for fixer-upper investment properties.

Even a multifamily bridge loan can be approved in weeks or mere days. They generally come with higher interest rates and origination fees, however.


Banks are very popular for residential, single-family loans. They also offer multifamily loans with competitive finance options. Banks are very highly regulated, however, and their loan terms tend to be stricter than private lenders.

Private Lenders

Private lenders can assume riskier multifamily loans that banks won’t consider. They generally offset these risks with higher interest rates, although they can also offer flexible loan terms as well.

Multifamily Loan Benefits

Multifamily loans have several advantages over investment types. They offer the relatively high stability of property investment, combined with the greater passive income opportunities of stock dividends.

Cash Flow and Passive Income

Single-family housing is a great investment. You’re more vulnerable to vacancy issues with only one unit, however.

Multifamily housing loans have higher costs than single-family loans, but the cash flow they generate is much greater. Multifamily properties also have greater valuation control with amenities and add-ons.

You can use multifamily investing to generate passive income by hiring a property manager. This lets you reap the benefits of a rental property without having to personally oversee its responsibilities.

Tax Deductions and Deferments

Every investor and business owner knows the value of tax deductions and deferments. They can offset the big tax liability bites Uncle Sam takes from your income.

Multifamily housing offers several lucrative tax deductions, including:

  • Mortgage interest
  • Property taxes
  • Property management costs
  • Property advertising costs
  • Property insurance
  • Legal costs
  • Maintenance and repair costs
  • Utilities
  • Asset depreciation

You may also meet the requirements for a Qualified Business Income deduction. The QBI can deduct as much as 20% off your taxable business income.


Even during tough economic times, multifamily housing remains relatively stable compared to other investments. This investment is more recession-resistant than stocks and investment funds.

Rental units are often the more affordable option compared to detached, single-family residences. This means people who sell their homes because of a recession will typically turn to rental properties. Rental rates have only increased over the past 80 years.

Are You Ready to Start Investing in Multifamily Homes?

Multifamily properties are prime real estate investment opportunities. You can generate passive income and increased cash flows through several different housing types.

You can also find multifamily loans and lenders that work with your qualifications and goals. Your investment portfolio will have a stable, high-performing asset added.

Are you looking for first-rate lending made simple? Contact us to learn more about our select loan services. Our team is always happy to assist your lending needs!