Small Commercial Expert

Multifamily Financing - FHA/HUD vs Freddie Mac

Multifamily Financing - FHA & HUD Programs

FHA and HUD have some fantastic programs to finance multifamily residential properties.  On the positive side they rates that can be sub 4% in some cases.  They also fix those rates for the entire term of 35 years!  That is amazing but it gets better, multifamily residential investors can get LTV (loan to value) ratios as high as 90%.  That's a low down payment of only 10% of the overall cost.

With all these great terms comes a serious downside.  The multifamily residential investor must commit the development to various types of rental assistance programs and in some cases must guarantee that rents will not be raised beyond a certain percentage per year!  This can severely damage prospects for long-term value appreciation and can restrict how the property produces income for 15-35 years.

While this type of multifamily financing offers great terms, those terms are meant to compensate the multifamily residential investor for taking on some slightly onerous rent controls and restrictions.  Other negatives include a 0.6% mortgage insurance premium, 0.3% commitment fee prior to closing and points and origination that can be 2-3% higher than conventional, Fannie or Freddie loans.

Multifamily Financing - Freddie Mac (Small Balance Loans)

Freddie Mac multifamily financing for multifamily financing for small balance loans are also great products.  Some loans receive rates in the low to mid 3% range!  These loans over a fairly aggressive LTV (loan to value) ratio of up to 80% with amortization as far as 30 years and fixed periods of 5 & 10 years.

Another great optional feature is that the rate for the first year or years 1-5 can be interest only!  For multifamily residential properties that are in rapidly appreciating markets this give the investor the ability to boost current income (NOI) immediately!  On a loan amount of $4,000,000 this could mean increased cash flow of over $80,000 per year!

The down side of Freddie Mac (Small Balance Loans) Multifamily Financing is that the loans generally balloon in 20 years and the fixed terms with the best rates are only 5 years.  At the end of the day an investor must make a decision about what they want to get out of their property.

Multifamily Financing - Conclusions

When purchasing multifamily residential investments in extremely stable to slightly declining markets, taking a long-term financing approach like the FHA or HUD options might be best.  Rents will typically stay equal to or be higher than market rents in areas hard hit by economic malaise.

However, if purchasing properties for current income, future income growth and capital appreciation is the strategy then turning to the Freddy Mac multifamily financing options is the bet choice.  No matter the direction it is often a good idea to seek the advice of a finance expert.  For a free, no hassle consultation contact us or apply online.  We are eager to assist.

Lending in all 50 states and focusing on Multifamily Financing for multifamily residential properties in the markets and submarkets listed in the S&P Case Shiller Home Price Index and the surrounding secondary markets to those cities.  We look for opportunities in:  Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, Fort Lauderdale, Orlando, San Diego, New York, San Francisco, Phoenix, Atlanta, Tampa Bay, Detroit, Minneapolis-Saint Paul, Charlotte, Dallas / Fort Worth, Portland, Seattle, Cleveland, Oklahoma City, Jacksonville, Indianapolis, Nashville, Kansas City, Louisville, Milwaukee, New Orleans, Philadelphia, Raleigh, Sacramento, Salt Lake City, San Antonio, San Jose, Saint Louis, Tucson, Austin, Baltimore.

 

Comment balloon 0 commentsMichael Gross • June 13 2015 12:18PM
Multifamily Financing - FHA/HUD vs Freddie Mac
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