SMALL BALANCE MULTIFAMILY LOAN Program
SMALL BALANCE MULTIFAMILY PROPERTIES
In Short Supply and in Demand
Introduction
The Small Balance Multifamily Loan Program offers real estate investors an excellent long-term financing option for a great asset class. Multifamily properties are substantial assets for investment groups and real estate investors. They provide ample housing to numerous tenants or families and occupy the least amount of land footprint.
Not only do multifamily properties provide housing for multiple occupants and have a high appreciation rate with a cash flow advantage. They are profitable assets for real estate investors or corporations that own them. Multifamily properties can be easier to manage for investors or management companies they hire because all the tenants are in one location. Managing multiple units under one roof is more effortless than handling multiple rental units in different pockets of areas.
Program Overview
Available options for multifamily programs include variable and fixed term options Fannie Mae, Freddie Mac, the FHA, and HUD. Some programs will have geographic restrictions, but most will cover nationwide in larger MSA locations.
The loans for small-balance multifamily property programs are available for Purchase and Refinance transaction loan amounts below $6 million. Fort Knox Capital offers the best loans for multifamily properties with an interest rate starting at 4.31%. With terms up to 35 years fixed. We offer larger Multifamily loans for amounts greater than $6 million.
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Quote Requirements
Several factors impact a quote for a Small Balance Multifamily loan closing cost, and providing necessary information prevents inaccurate quotes and assumptions. We request the basic details to properly provide a soft quote:
- Current Rent Roll
- The last 12 months’ Operating Statement
- Personal Financial Statement
- Applicants Real Estate Owned (REO) list
Due Diligence
If a quote has been provided and the investor agrees to proceed, a letter of intent will be issued and a due diligence fee would be due at signing and this would go towards appraisals, environmental (phase 1), engineering, zoning reports, and any other lender or agency reviews/reports needed for underwriting.
The Due Diligence fee will be dependent on the size, condition, and location of the property and due to 3rd party quotes, this can range from $10,000 to $30,000 respectively.
Item Review:
During our Due Diligence, there will be several documents we will request for in-house review while awaiting 3rd party reports and having them current and readily available to help streamline the process for our underwriters.
Guarantor(s)
- Completed Application
- Property questionnaire
- 2 months of bank / financial statements
- Personal Financial Statement
- Credit Authorization
Borrowing Entity
- Articles of Incorporation
- Operating Agreement
- Organization Chart (if any)
Property
- Purchase and Sale Agreement (if purchase)
- Trailing 12 months – Operating statement
- Last 3 fiscal years – Operating statement
- Last 3 fiscal years – Tax statements and current assessments
- All 3rd party vendor contracts
- Survey
- 12 months Pro-forma
- Insurance policy and contact info
- All residential lease agreements
- All commercial lease agreements including their insurance policies
- Property management agreements
- Property management resume
- Current mortgage statement or ground lease agreement
Property Types
Market Rate Residential Multifamily
Market rate residential multifamily are non-subsidized properties without legal compensation or special subsidies. The real estate market generates the market rate for these residential multifamily properties in the regulatory environment.
These properties’ market prices directly result from planning practices and policies, and individuals either buy them at their market value or pay market rent.
Market rate residential multifamily properties are developments based on current market demand and values, unlike an open market. They have zero reliance on government assistance or subsidies.
Affordable Multifamily Housing
Residential housing multifamily is an affordable rental structure open to various household income ranges. Residents rent multifamily developments below 60% of the location’s median income, making them affordable.
Residential multifamily properties take 30% to 40% of household incomes but vary by state and city. These properties ensure everyone has a decent place to live, from three-bedroom homes to studio apartments. Residential housing multifamily has different housing unit sizes and can have many bedrooms.
Mixed-Use Multifamily With the Majority of Residential Units Occupying More Than 50%
Residential mixed-use multifamily properties are housing units designed to house multiple individuals and blend various uses. These residential properties blend industrial, commercial, and even entertainment uses in one space.
Mixed-use multifamily buildings can be single-family homes with an office, two upstairs, or a retail shop. These properties can also be big apartment buildings with underground parking garages or hotels with guest rooms and retail shops. Mixed-use multifamily housing is usually most viable in areas with airports, schools, event centers, libraries, parks, and more nearby.
Student Housing
A Student Housing property offers financing options for the financing or refinancing of stabilized student housing properties, which are outlined as a conventional multifamily property where 20% or more of the units are leased to undergraduate and/or graduate students, or a property that was specifically constructed or leased for student housing. The property may be leased per unit or bed. The maximum LTV is 75%, while the DSCR minimum is 1.30x.
Senior Housing
Senior multifamily residential properties are housing units for individuals 55 years and older. These multifamily affordable residential properties cater to seniors receiving rental assistance and funding from the United States.
These housing units are similar to regular apartments but have rental restrictions and age limits. Senior multifamily residential properties have flexible financing terms. One detail to note is that they generally do not have kitchens within the units unless it’s designed to be a fully Independent Living facility. These properties offer social activities, community rooms, and other amenities, but without meals for residents.
Assisted Living Facilities, Memory Care, and Independent Living
Assisted living facilities are housing units that provide rooms and common areas for residents. These properties are units designed for people who cannot live independently or live with disabilities and offer various services with regular supervision.
Assisted living facilities are similar to retirement homes catering to the older adult population with personal and medical assistance. These residential facilities help the more elderly adult population with laundry, housekeeping, meals, dressing, bathing, and other daily activities.
Meanwhile, memory care is residential long-term care catering to people with memory issues. Many assisted living facilities provide memory care services to patients with dementia. Independent Living means having the freedom to determine where and how to live, how to spend their time, or even if they choose to continue to work or volunteer.
FAQs
What is a Small Balance Multifamily Loan?
A Small Balance Multifamily loan is a finance option from banks and private money lenders financed to individuals or corporations buying multifamily properties. It is a loan secured by the multifamily property and all its receivables and/or collaterals.
These best Small Balance Multifamily loans can finance a portfolio of housing units such as apartment buildings, duplexes, townhomes, condos, and more. A Small Balance Multifamily loan allows you to renovate a property in poor condition or purchase residential rental properties with attractive interests.
How Do Small Balance Multifamily Loans Work?
Small Balance Multifamily loans are simply to finance the purchasing and refinancing of Multifamily properties only. But how do Small Balance Multifamily loans work? Small Balance Multifamily loans allow new and experienced investors to borrow funding. The funds can be used to refinance or purchase multifamily properties. These loans have attractive interest rates with terms of up to 30 years, depending on your loan package.
While Small Balance Multifamily loans are ideal for investors and homeowners, they require qualifications. The last 12 months’ operating statement and a minimum credit score are a few Small Balance Multifamily loan requirements. There are competitive interest rates, and you need a down payment for Small Balance Multifamily loan closing costs.
Benefits of Small Balance Multifamily Loans?
These loans enable you to acquire a multifamily real estate asset property, which offers an excellent source of cash flow and is one of the most stable and secure real estate assets, as well as the lowest cost of capital or interest rate to acquire or refinance among your entire real estate portfolio. Don’t forget that there are several enticing tax perks.
Another tax advantage is the abundance of cost-effective deductions. The owner of a multifamily property may deduct insurance payments, property management fees, maintenance and repair expenditures, marketing charges, etc. When these large-scale residential properties are properly organized and maintained, they are simple to finance.
How to Qualify for a Small Balance Multifamily Loan?
There is no proper way to answer this fully without knowing the entire parameters between the details of the property, the borrowing sponsor, and the location and the simple fact that there are truly over 40+ methods between programs and agency participation to qualify for “A” Small Balance Multifamily loan.
However, the fundamentals are quite simple.
- Maintain the best credit standings you can.
- When purchasing, purchase within your financial abilities. Which can mean after the down payment(equity) you should have a financial reserve of at least 12 to 18 months of principal and interest payments. This also applies when refinancing a property. The higher the loan amount, typically $6 million or higher the required reserves increase to include not only the principal and interest payment but also taxes and insurance
- Hiring a well-established Property Management company unless you have verifiable experience and a team to support.
- When purchasing, closely examining the property’s financials is very important making sure the debt-service coverage is at a minimum of 1.25 for a minimum of 3 months. The higher the better, expect the unexpected with lease maturities and/or defaults.
- Examining the Rent Roll for the last 6 to 12 months and be cautious of any volatility in the occupancy rate and if there is, ask questions. A 90% occupancy for the last 3 months is your target.
What are the Types of Small Balance Multifamily Loans?
Acquisition, multifamily construction, refinance, and bridge loans are Small Balance Multifamily loan types. Consider applying for an acquisition loan if you require a financing option to purchase multifamily properties. But apply for multifamily construction loans for building a new multifamily property structure.
Investors who buy multifamily properties with a construction loan can get renovation funding. Multifamily refinances loans allow investors to refinance these residential housing units and many close loan options after renovations. However, bridge loans help real estate investors reposition properties and get permanent financing or resell them after renovations and rehabilitation.
How Long Usually Does it Take to Close?
The loan product you choose and how responsive you (and your legal team) are will determine this in the end. Having said that, several lenders for apartments have created innovative technology to expedite document processing. No more scanning and emailing signed papers back and forth, you can upload all your required documents and know any outstanding documents needed.
Will I Receive a Copy of My Engineer Report, Credit Report and Appraisal?
Yes, you have the right to a copy of the reports if you paid for these services with a due diligence fee and keep them for your records but only after the due diligence process.
For How Long Can You Guarantee My Rate?
Rate locking often happens after a lender has provided a commitment. For fixed-rate contracts, the rate lock period might be as little as one week or as long as 120 days. There is sometimes a choice for early/index rate locks.
What Kind of Insurance Do I Require?
Depending on the amount and kind of loan you take out, several types of coverage may be needed. However, you must have property damage insurance that is issued for at least 100% of the asset’s estimated replacement cost. There may be more suggestions for boiler and equipment insurance, as well as potentially a yearly inflation adjustment. You should prepare to get flood insurance if you live in a flood zone.