What Is Multifamily Finance and Why It Makes a Difference in 2023?


Is it hard to get a loan to build a multifamily property?

Perhaps you are interested in investing in real estate?

Or you wish to finance your future home?

Or renovate?

Today, we decided to shed some light on the topic and answer the question:

What is multifamily finance?

Investing in multifamily is business first. There are US investors who are solely engaged with housing, and let me tell you – these people are making it rain.

Multifamily mortgages in the US have reached a record level in the past three years. In some cities, the construction of a multifamily home costs less than building a single-family house.

Here’s the plan – we’ll start with some statistics, then we’ll get to know Fannie and Freddie (you’ll see!). After that, we’ll talk about the four types of multifamily financing, and finally – we’ll walk you through the process of investing in multifamily property.

Today we’ll make our first steps in multifamily finance together.

It’s worth it, we promise.

Now, chop-chop, we are losing daylight here:

Latest Multi-Family Finances Statistics

Before we start, let’s clear something up. Today we’ll show you the basics. These are the terms and guidelines you need to know if you are thinking about multifamily financing but don’t know the first thing about it.

However, we’ll provide you with plenty of links to websites where you can find additional materials and continue with your research. And let me tell you:

It doesn’t matter whether you are looking for a small Hobbit-like home or you are thinking about something a bit more fabulous:

Actually, if you have really set your eye on a Hobbit home – you are gonna need around $41,000. And if you don’t want a Hobbit-like house… well…

… I don’t recommend looking for property in the Shire.

Jokes aside, let’s get to the point:

Why is multifamily financing such a big deal in 2022?

Investing in multifamily properties in the US is super popular these days. And demand is growing at a steady pace. There are many different types of multifamily mortgages, but we’ll get to that in a minute.

First things first:

What Is a Multifamily Property?

As its name suggests, a multifamily property is a residence that accommodates more than one household. There are two types of multifamily properties – residential and commercial. Residential multi-family properties accommodate up to four households. Those built for more than four households are designated commercial.

An image is worth a thousand words. So… multifamily units can look like this:

Financing commercial real estate is more difficult. Now, multi-family homes can be duplexes, townhomes, and four-unit apartment buildings. They generate higher monthly rental income than single-family homes.

The lower maintenance costs of a multifamily property make it a lot more affordable and a much more profitable investment than a single-family home.

Statistics will tell us all there is to know about the state of multifamily finances in recent years:

Yes, guys. In 2019 the unemployment rate in the US has reached the nearly-historic low levels of 3.7%. Consequently, there is more demand for rental housing and mortgages. Also, investments in multifamily property are skyrocketing, but the costs of homeownership are still rising.

In 2019, investors must keep in mind the changing demographics and consumer preferences, as well as the rising popularity of multifamily mortgage loans requirements.


You are probably wondering where in the US can you find the most multi-family homes?

Follow the blue dots:

Regions with the highest concentration of multi-family homes in the US.

(Image: Reonomy)

Now, before we go on, let me ask you a question:

What is the most important thing you should consider before buying a house?

Can I afford that house? (warm)

Can I afford the payments? (warmer)

What’s the interest rate? (Bingo!)

Now, when it comes to mortgages and financing a multi-family property unit, we can’t go on without introducing the stars of the show:

Fannie Mae and Freddie Mac

(No, they are not the characters of a TV show, although I wouldn’t hold it against you if you thought so in the beginning.)

Fannie Mae and Freddie Mac were created by Congress to offer multifamily loans. They have been financing multi-family homes for decades and so providing homes for millions of Americans. They are the link between the bank and the people who are applying for a mortgage. If your credit score is bad, however, you may want to consider some of these instead.

In other words, Fannie and Freddie are the companies making mortgages accessible to many Americans. They are a huge part of the US housing market. And thanks to the 30-year fixed-rate mortgage, many families have been able to purchase a home.

During the 2008 Wall Street crisis, Fannie and Freddie took a blow but managed to recover with the help of the government. Today, ten years after the crisis, they are still under government control.

In fact:

Let’s wish Fannie and Freddie a long and happy life because if something were to happen to either of them – the world economy will suffer. We’re talking global havoc, guys. The two companies are interwoven, and if one of them collapses, well…


Now that we know where the money for these loans comes from, we can move on to the:

Four Types of Multifamily Financing

All right then. We entered the deep waters just now. Keep calm, breathe deeply, and read on.

First, let’s get some terms straight before we start! (If you are familiar with those already and don’t need a reminder, feel free to skip ahead).

Now, what is a:

Hard Money Loan:
The borrower receives money which is secured by existing property. Higher interest rates are typical for hard money loans. (“hard money” basically means money that came from a government agency or other organization)
Bridge Loans:
Bridge loans provide an immediate cash flow obtained by a company or person. The permanent financing is usually used for short-term loans.
Funding Time:
The time in which the money for your loan will be capitalized/provided.
LTV Ratio:
That stands for loan-to-value ratio. The higher the percentage of the LTV – the riskier the loan is for the lender. LTV below 80% means lower levels of risk, which is perfect for lenders who consider higher-risk borrowers, like people with bad credit scores, for example.


Every type of mortgage requires a different credit score. Do you know what your credit score is right now and how it compares to others? If you are not sure – you can go online and check it for free.

Both Fannie Mae and Freddie Mac offer a wide range of loans. Since 2009, Fannie Mae has invested more than $5 trillion in the mortgage market. Actually, together Fannie and Freddie are the largest buyers of mortgages on the secondary market in the US.

One of the questions people ask themselves most frequently is:

How to Buy a Multifamily Property With No Money?

Obtaining an affordable home mortgage is what we are looking for. Let’s have a look at the four types of loans out there.

We’ll start with:

Short-term Multifamily Financing Loan

This type of loan is supposed to either finance properties in good condition or cover home renovation costs. Since it is a short-term loan, the maximum amount of money involved is not too big. Nevertheless, it might be enough to purchase a duplex:

  • Best for: fixing a property in poor condition
  • Used for: duplex loans, or renovation, or increasing the occupancy
  • Offered by: RCN Capital
  • Range: from 6 to 36 months
  • Hard money loans + bridge loans
  • LTV: up to 90%
  • Maximum loan amount: $100,000
  • Funding time: 10 to 15 days
  • Credit score: 550 or higher

Now, most investors will offer you a long-term multifamily loan after the end of the term of the short one. It is useful to have previous experience with investing in order to consider taking a short-term loan.


Conventional Mortgage

The conventional (a.k.a. conforming) mortgage is a loan that’s not guaranteed by the government. The loan rates can be either fixed or varying throughout the term of the loan.

Conventional loans are the most popular choice on the US market and come with cheaper mortgage insurance (PMI). Fannie Mae offers conventional mortgages, as well as many other types of loans. Just make sure to check every type of loan and consider the differences among them, and you’ll be fine!

Multifamily real estate loans like the conventional mortgage require the strict following of the guidelines. In the case of the conventional mortgage, the investor’s credit score needs to be 620 or higher.

  • Best for: traditional multifamily financing
  • Used for: 2-4 housing units
  • Offered by: Fannie Mae/ Lending Tree
  • Range: from 15 to 30 years
  • LTV: up to 80%
  • Maximum loan amount: $484,350
  • Funding time: 30-45 days
  • Down payment: 20%

In 2019, Fannie Mae increased the maximum limit of the loan to $484,350. The requirements for a conventional loan include an appraisal fee of $500 or more and an application fee of up to $200.


Portfolio Loan

Portfolio loans are not sold on the secondary mortgage market. They are easier to qualify for, and interest rates may vary according to the wishes of the loaner. However, the LTV rate of portfolio loans is extremely high, which makes it convenient for investors on the lookout.

  • Best for: self-employed investors/investors with a bad credit score
  • Used for: financing multiple properties at once
  • Offered by: Fannie Mae
  • LTV: up to 97%
  • Range: from 3 to 30 years
  • Minimum loan amount: $100,000 or more
  • Funding time: 30 to 45 days
  • Down payment: 3% or more

Applying for a portfolio loan is easier in comparison to other types of loans. It makes purchasing a two-unit home easier, and you don’t need to have an excellent credit score in order to get it. Hey, you may even have a second mortgage and still apply for a portfolio loan.

There are four types of portfolio loans:

(Image: FitSmallBusiness)

And last but not least:

Government-Backed Loan

Those are FHA loans. Those loans require a very low down payment and are given for the longest period of time – you can take a loan for as long as 35 years. And they offer the largest amount of money.


Government-backed loans limit the amount of cash according to the units that are being financed. They also vary according to the local median home value.

  • Best for: investors who will be future occupants
  • Used for: 2-5 units
  • Offered by: Fannie Mae and Freddie Mac
  • Range: from 5 to 35 years
  • Minimum loan amount Fannie Mae: $750,000
  • Minimum loan amount Freddie Mac: $1 million
  • Maximum loan amount (Freddie Mac): $6 million
  • LTV: up to 80%
  • Funding time: 60 to 180 days
  • Down payment: 3.5% or more
  • Credit score: 650 or higher

Now, there are five types of FHA loans:

(Image: Investopedia)

Government-backed multifamily loans are perfect for investors who wish to be future occupants. The low down payment gives you the power to purchase more property and become a future resident in one of the units.

Now that we saw the 4 types of multifamily financing, we can take a break, grab a coffee, and then move on:

How to Get Started?

So, you have decided to invest in multifamily property?


Perhaps you’ve already chosen one of the multifamily mortgage loans that we shared with you today? Excellent! No doubt you are eager to know what comes next.

Investors need to be aware of all the details that come along with taking a loan: down payment, loan rate, credit score, property type, occupancy, debt-to-income ratio… It’s a lot of information, but let’s stay positive and you’ll see that your goals are totally achievable.

So, we made a checklist for you. Here we go:

1. Do your research

Well, since you are here, that means that you have already started with that. Good job! However, there’s tons of information you need to familiarize yourself with before you go on. A good strategy would be to find someone with experience on the market.

They can share with you some valuable information – how they made their first steps, what loans they took, and how that worked out for them.

In other words, gather as much information as possible!

It sounds like a generic rule, but you’ll thank yourself later on!


2. Choose a neighborhood

Make a list of neighborhoods with their pros and cons!

No place on the planet is perfect (Hogwarts being THE exception). And make sure to pay attention to details. It may be a great school area, but public transportation may suck. Or there might be nice restaurants and cafes but not enough public parking spaces.

The best thing to do is get in the car and drive around the neighborhood. Make a list of the things you loved and the things that you didn’t. Explore on your own – that’s the best way to see the full picture.

Another thing to look for: it’s important that local businesses are thriving – that will attract future investors and tenants. When you have narrowed down the list to three neighborhoods, just keep one thing in mind – you can renovate and upgrade the multifamily property but not the entire neighborhood.


3. Set your budget

At this stage, make a rough estimate. The most important thing to consider is the amount of money you’ll need for repairs and maintenance, whether you do it yourself or get a home warranty company to do it for you. It’s important because people often forget about those.

There are all sorts of costs you need to add on top of the budget for the property itself. Also, there are real estate agent fees and application costs that one might forget to include in the budget.

But you know better now!

4. Choose your lender

Super important step. The lender will finance your project, so you need to choose wisely. Make sure you pay attention to the rates and terms lenders are offering you. Needless to say (but I’ll include it anyway, just to be on the safe side), the lender must work with the state and area you have chosen.

And one last thing – the lender must be easy to get in contact with. Investing in real estate is quite a handful, and if you can’t get in touch with your lender whenever you have to, the process can take ages.

5. Pre-approval letter

Check the requirements and prepare every required document. The standard information needed for the pre-approval letter includes your employment history, two years of tax payments, your credit score and bank statements.

6. Hire a realtor

You are going to need professional help with choosing your multifamily property. You can’t get all things done online – you need to get out there. Do take with you that list you already made, as you might have missed something.

However, choose your multifamily broker wisely – make sure the person you hire has previous experience with multifamily properties and is not just specializing in single-family homes.

7. Choose your multifamily property

Narrowing down the properties to just a couple will take time, so you need to be patient. At that stage you have probably been approved and have hired a real estate agent. So, you are almost there, you have done an amazing job so far, and there are just a few more things for you to consider.


Make sure you check the condition of the multifamily homes you are choosing from. You need to make an estimate of the necessary expenses and repair costs involved before the place is ready to rent.

Speaking of rent, you need to establish a rent price. The best way to do that is to check out the current rents and compare them with the average rent in the area. Rule of thumb – if the vacancy rate is less than 10%, it’s a keeper.

And once you’ve decided on a property, go ahead and:

8. Make an offer

Your realtor will take care of that. If you get the approval – you cash in a deposit, get the funding, and seal the deal.

So, here we are.

Loans for multifamily properties don’t look so scary anymore, do they?

Today you made your first steps. Well done!

Wrap Up

Getting started with investing in multifamily finances takes time and effort. Done right, it might be a tremendous source of passive income. Any previous experience with investing would be helpful in the beginning.

If we ask you again:

What is multifamily financing…

… you are on the safe side and are quite prepared to start your research and become an investor.

Buying a multifamily home is a profitable business investment. It’s different from investing in single-family property, and the loans are specifically designed for the purpose. That’s why we walked you through the 4 types of multifamily financing. It was a wild ride, but we made it!

Great job, guys!



I've been a tech-addict all my life. I still remember the sound of a successful dial-up connection. I started my writing career at a very young age for a gamers' magazine. I'm fascinated by each new technology, as a kid with a long-anticipated Christmas gift. My hunger for knowledge and child-like fascination with everything with wires or codes helps me cover a wide array of articles here, on Review42.com. Whenever I'm not staring at a display I enjoy exploring new places.

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