Difference Between 2-4 Units Financing and 5+ Units Financing

If you’re a first time multifamily investment buyer, getting a loan may seem like a daunting task. There are a lot of confusion regarding the different types of loans, rates, and terms for an apartment building. Here is a basic guide showing the difference between 2-4 units financing and 5+ units financing:

2-4 Units Apartment Building Financing:

• Residential Loan • Down payments are usually 20-25% of the purchase price for a conventional loan if not owner occupied. Down payment may be less if owner occupied and depending on the type of loan. • Currently, interest rates range between 3.5 – 5% • Typically most borrowers opt for the 30 year fixed loan terms. However, there are options that include 5, 7, 10, 12, 15, or 20 years fixed loan terms • Usually 75% Loan to Value ratio (LTV) • Strong FICO score (680+)

5+ Units Apartment Building Financing:

• Commercial Loan • Emphasis on the experience level of the borrower and the financials of the building • Borrower must have a strong FICO score (680+) and net worth • Minimum down payment of 30% of purchase price for a qualified borrower. It may increase depending on the financials of the building. • Includes 5, 7, 10, 12, 15, 20 or 30 years fixed loan terms. Typically, borrowers opt for the 7 year fixed loan term • Currently interest rates range between 3.5-5% • Up to 80% Loan to Value Ratio (LTV) • 1.2-1.25 Debt Coverage Ratio (DCR)

These are just the basic loan terms for 2-4 units and 5+ units financing. If you are considering purchasing your first apartment building, please contact me and I will walk you through the process of getting a pre-approval and finding the perfect property for you.

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