Multi-family loans are sought by people who need help purchasing a multi-family property, which is a piece of real estate that can house more than one family.
Typically, for a property to be considered multi-family, it has between two and four units that each consists of a kitchen, a living area and a bathroom. Properties with more than four units are not regarded as multi-family, but as commercial. People wanting to buy commercial properties would need to obtain commercial mortgage loans rather than multi-family loans.
How do you get a multi-family loan?
People must meet several requirements in order to qualify for a multi-family loan. But like any other type of mortgage loan, they will need to supply their financial statements and credit reports for a mortgage company to assess their application properly.
But they would also need to supply their income, amount of existing debt, and amount of capital they could put down. The lender might also asked them to provide information about the property, such as its current condition, as well as other paperwork and documentation, such as a financial plan indicating how they are going to pay off the loan.
When it comes to obtaining multi-family loans, buyers are usually required to pay a 25 percent down payment for the property. Buyers of multi-family housing who won’t be living in the building—only renting out the units—will need to pay a higher down payment because it’s not guaranteed that they’ll be able to find qualified renters to bring in income.
Other restrictions could apply so it’s recommended that borrowers contact several different lending companies before they commit to one.
Can rental income be cited as a means to pay off a multi-family loan?
Yes. You can tell the lender that you plan to use the rental income from the multi-family property to pay back the money you borrow. Whether you plan to live in one of the units and rent out the others or you are going to reside elsewhere and rent out all of the units, the rental money can significantly help you to not only pay off your multi-family loan, but any other loans you may have.
Still, it’s important to keep in mind that you should have other ways to cover your loan expenses. Some lenders may hesitate to grant you a loan if rental income is your only way to pay it off because they are concerned about the vacancy rate. You may not be able to fill every unit, for whatever reason, and the lender will not approve your loan if your ability to pay depends only on full occupancy. Some lenders may even conclue that the amount you would receive from tentants, with every unit filled, would still not be enough.
Is buying a multi-family loan for everyone?
No. Buying a multi-family home isn't an investment that everyone should make. However, if it's something that you're seriously considering, do some research about the advatanges and disadvantages of buying a mult-family property first. This way, you can get a clearer idea of whether or not it's a venture you would like to pursue.