What Kind of Loan for a Multifamily Property?

Financing a multifamily property involves more options than most investors realize. The right loan type depends on how many units the property has, whether you will live there, your financial situation, and your investment goals. Understanding what kind of loan for a multifamily property fits your situation helps you secure optimal terms and maximize returns.

This comprehensive guide breaks down every multifamily financing option, from FHA loans for first-time buyers to commercial programs for seasoned investors.

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What Types of Loans Are Available for Multifamily Properties?

Multifamily loans fall into distinct categories based on the property size and borrower situation. Knowing where your investment fits helps you focus on relevant options.

Residential loans (for 2-4 units) include FHA, VA, and conventional mortgages. These programs evaluate your personal income, credit, and employment while allowing rental income to help you qualify. Owner-occupied properties access the best terms.

Investment property loans include conventional investor loans and DSCR loans. These serve buyers who will not live in the property. Down payment requirements are higher, but you gain flexibility and can build portfolios more easily.

Commercial loans (for 5+ units) include bank portfolio loans, agency loans from Fannie Mae and Freddie Mac, CMBS loans, and bridge financing. These focus primarily on the property's income rather than your personal finances.

Understanding which category applies to your situation narrows your search significantly.

How Does FHA Financing Work for Multifamily Properties?

FHA loans represent the most accessible entry point for multifamily investing. These government-backed loans offer low down payments and flexible credit requirements for buyers who will live in one unit.

The FHA allows financing for properties with 2, 3, or 4 units with just 3.5% down if your credit score is 580 or higher. For a $400,000 triplex, you need only $14,000 for the down payment.

Owner-occupancy is required. You must live in one unit as your primary residence for at least 12 months after closing. After that period, you can move out and keep the property as an investment.

Rental income from the units you will not occupy helps you qualify. Lenders count 75% of the projected rental income toward your qualifying income, potentially allowing you to afford a more expensive property.

FHA mortgage insurance adds cost but enables the low down payment. You pay an upfront premium (1.75% of the loan amount) plus annual premiums until you refinance or pay off the loan.

Properties must meet FHA Minimum Property Standards. Significant repairs may be required before closing, or you might use an FHA 203(k) loan that finances both purchase and renovation.

Our detailed guide on FHA loans for multi-unit properties covers all requirements and strategies.

What About VA Loans for Multifamily Properties?

VA loans offer eligible veterans and service members exceptional terms for multifamily purchases, including zero down payment options.

Like FHA, VA loans finance properties with up to 4 units when the borrower will live in one unit. The key advantage is no down payment requirement for qualifying borrowers, making VA the most accessible multifamily financing available.

No mortgage insurance applies to VA loans, though a funding fee (typically 2-3% of the loan amount) can be financed into the loan. This fee may be waived for veterans with service-connected disabilities.

Credit requirements are generally more flexible than conventional loans, though individual lenders may set higher standards. Most VA lenders want to see credit scores of 620 or higher.

VA loans have no maximum loan amount, though higher amounts may require a down payment. The conforming loan limit determines the threshold where down payments begin.

Properties must meet VA appraisal requirements that ensure safety and livability. These standards are similar to FHA requirements and may require repairs before closing.

VA loans are repeatable. You can have multiple VA loans simultaneously in some cases, or use your VA benefit again after paying off a previous VA loan.

How Do Conventional Loans Work for Multifamily Properties?

Conventional loans serve both owner-occupied and investment multifamily purchases with competitive rates and more flexibility than government programs.

For owner-occupied 2-4 unit properties, conventional loans typically require 15-20% down payment. Credit score requirements start around 620, with better rates available at 740 and above.

For investment properties (where you will not live), down payment requirements increase to 20-25%. Credit requirements are stricter, typically 680 or higher, and interest rates run slightly above owner-occupied rates.

Private mortgage insurance (PMI) applies when you put less than 20% down on owner-occupied properties. Unlike FHA, PMI can be removed once you reach 20% equity.

Rental income helps qualification for both owner-occupied and investment purchases. Lenders typically count 75% of projected rental income toward your qualifying income.

Loan limits apply. Conforming loan limits for 2-4 unit properties exceed single-family limits, ranging from $604,400 for duplexes to $908,050 for fourplexes in standard areas (higher in high-cost markets).

Conventional loans avoid the mortgage insurance costs of FHA for borrowers who can meet the higher down payment requirements. For investors with strong credit and capital, conventional financing often provides the best overall value.

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What Are DSCR Loans for Multifamily Properties?

DSCR (Debt Service Coverage Ratio) loans have transformed multifamily investing by qualifying borrowers based on property income rather than personal income.

The DSCR calculation divides the property's net operating income by the proposed mortgage payment. A DSCR of 1.25 means the property generates 25% more income than needed to cover the debt. Most DSCR lenders require ratios of 1.0 to 1.25 minimum.

No income verification or tax returns are required. This makes DSCR loans ideal for self-employed investors, those with complex income situations, or anyone who wants faster, simpler qualification.

Down payments typically range from 20-25%, similar to conventional investment loans. Credit requirements usually start at 660, though some lenders accept lower scores for strong properties.

Interest rates run slightly higher than conventional loans, typically 0.5-1% more. The premium reflects the streamlined underwriting and different risk profile.

DSCR loans work for both 2-4 unit residential properties and larger commercial buildings. They are particularly popular for investors building portfolios because each property qualifies independently based on its own performance.

Our guide on DSCR multifamily requirements explains qualification details and strategies.

What Commercial Loans Work for Larger Multifamily Properties?

Properties with 5 or more units require commercial financing. Several options serve this market with different characteristics.

Agency loans from Fannie Mae and Freddie Mac provide the best terms for stabilized apartment buildings. Competitive rates (often 6-7%), terms up to 30 years, and non-recourse options make agency loans the gold standard. The Small Balance Loan programs target properties with loan amounts between $750,000 and $6 million.

Bank portfolio loans offer relationship-based financing with more flexibility. Local banks may approve deals that agency guidelines would reject, particularly for borrowers with strong banking relationships.

CMBS loans (Commercial Mortgage-Backed Securities) pool commercial mortgages into securities. These offer competitive rates and non-recourse terms but have limited flexibility and strict prepayment penalties.

Bridge loans provide short-term financing (1-3 years) for properties needing repositioning. Higher rates (8-12%) are offset by the ability to fund value-add acquisitions before permanent financing.

HUD/FHA multifamily loans offer exceptional terms (up to 35 years) for qualifying properties, particularly those serving affordable housing needs. Processing times are longer, but the terms reward patient borrowers.

Our comprehensive guide on apartment building loan types compares all commercial options.

How Do You Choose Between Loan Types?

Selecting the right multifamily loan requires matching your situation with available options.

First, determine if you will live in the property. Owner-occupied purchases access better terms through FHA, VA, or conventional owner-occupied programs. Investment purchases are limited to conventional investor, DSCR, or commercial options.

Second, count the units. Properties with 1-4 units can use residential loan programs. Properties with 5+ units require commercial financing. This distinction fundamentally changes your options.

Third, evaluate your finances. If you have limited savings, FHA or VA low down payment options may be your only path. If you have capital but complex income, DSCR loans avoid documentation hassles. If you have strong credit and stable employment, conventional loans often provide the best rates.

Fourth, assess the property. Stabilized properties with strong income qualify for the best terms. Value-add properties needing improvement may require bridge financing initially.

Fifth, consider your timeline. If you need to close quickly, some loan types process faster than others. Bridge and DSCR loans often close faster than agency or government programs.

Use our commercial mortgage calculator to compare how different loan types affect your returns.

What Is House Hacking and Why Does It Matter?

House hacking has become the preferred entry strategy for multifamily investors because it combines owner-occupied financing benefits with investment returns.

The concept is simple: buy a 2-4 unit property using FHA or VA financing, live in one unit, and rent the others. The rental income covers most or all of your mortgage payment, while you build equity and gain landlord experience.

FHA house hacking requires just 3.5% down. For a $300,000 duplex, you need $10,500 plus closing costs and reserves. If the other unit rents for $1,500 per month and your mortgage is $2,200, you effectively live for $700 per month while building equity.

VA house hacking requires zero down for eligible borrowers. The entire purchase is financed, maximizing leverage and preserving capital for other investments.

After the 12-month occupancy requirement, you can move out and repeat the process. Some investors accumulate multiple properties over several years using this strategy, building substantial portfolios with minimal initial capital.

The combination of low down payment requirements, rental income qualification assistance, and below-market interest rates makes house hacking the most accessible path to multifamily wealth building.

What Factors Affect Your Multifamily Loan Options?

Several factors influence which loan types you qualify for and what terms you receive.

Credit score thresholds vary by loan type. FHA accepts scores as low as 580. Conventional owner-occupied loans typically require 620. Investment loans and DSCR programs usually want 660 or higher. Commercial loans generally require 680+.

Down payment capacity determines accessible loan types. If you have limited savings, FHA and VA are your primary options. With 15-20% available, conventional owner-occupied loans open up. With 20-25%, investment loans become accessible.

Income documentation needs differ dramatically. Traditional loans require tax returns, pay stubs, and employment verification. DSCR loans skip personal income verification entirely, relying on property cash flow.

Property condition matters most for government loans. FHA and VA have strict property standards that may require repairs. Conventional and DSCR loans are more flexible, and bridge loans specifically target properties needing improvement.

Investor experience influences commercial lending. First-time apartment investors may face higher requirements or need experienced partners. Building a track record through smaller properties improves future options.

What Are the Most Common Multifamily Financing Mistakes?

Understanding common mistakes helps you avoid expensive errors.

Choosing the wrong loan type often costs thousands over the life of the loan. An investor using a conventional loan when DSCR offers better terms, or paying for FHA mortgage insurance when conventional financing would work, loses money unnecessarily.

Underestimating true costs leads to cash flow problems. Beyond the mortgage payment, budget for property taxes, insurance, maintenance, vacancy, and capital reserves. Lenders account for these; you should too.

Failing to shop multiple lenders leaves money on the table. Rates and terms vary significantly between lenders, even for the same loan type. Getting quotes from 3-5 lenders ensures competitive pricing.

Moving too fast without proper preparation creates problems. Organizing financial documents, understanding property finances, and pre-qualifying with lenders before making offers prevents delays and disappointments.

Ignoring the refinance plan matters for shorter-term loans. Commercial loans with 5-10 year terms require refinancing at maturity. Understanding your exit strategy prevents surprises.

Ready to Finance Your Multifamily Property?

The right loan type makes a significant difference in your investment returns. Whether you are using FHA to house hack your first duplex or agency financing for a 50-unit apartment building, understanding your options enables smart decisions.

Start by clarifying your goals: owner-occupied or investment, 2-4 units or larger. Then evaluate your finances honestly: available capital, credit score, income documentation. Finally, match your situation with the loan types that best serve your needs.

For additional information on specific loan types, see our guides on is it hard to get a multifamily loan and commercial building down payments.

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Our team specializes in multifamily financing across all loan types and property sizes. We will assess your situation, compare available options, and help you secure the optimal financing for your investment goals. Contact us today to discuss your multifamily purchase.