How to Underwrite a Multifamily Mortgage Loan

When it comes to financing multifamily property, there are several different options available. These include permanent loans like HUD, Fannie Mae and Freddie Mac multifamily financing, life company loans, CMBS and conduit lenders, and even hard money and private money lenders.


The type of multifamily mortgage loan that you need depends on your business goals.

The Basics

Multifamily mortgage loans are used for the acquisition, refinance, development and rehabilitation of apartment buildings with five or more units. They can be permanent financing packages or short-term bridge loans. They can be backed by government-sponsored programs like FHA owner-occupied multifamily loans, agency lending such as Fannie Mae or Freddie Mac multifamily loans or private commercial lenders, such as life company and bank loans.

A borrower’s credit score is important for a multifamily property loan, just as it is for other types of loans. A higher credit score translates to easier access to funding and lower interest rates. Typical credit scores for a multifamily property are between 620 and 680.

For FHA owner-occupied multifamily loans, borrowers are generally required to have a minimum credit score of 620. However, the specific credit requirements vary from lender to lender and depend on the type of multifamily property being purchased.

Lenders also analyze a sponsor’s experience in real estate, their liquidity and net worth along with their credit history when determining if they will be able to manage a multifamily property. Lastly, a property’s occupancy and debt service coverage ratio are taken into consideration. This is a different way of analyzing a property than what’s done with home mortgages, which focus on a borrower’s income.

Permanent Loans

Whether you’re building a new home or remodeling your existing residence, permanent loans can help you make that project a reality. These long-term financing options come with extended terms and flexible loan structures that can fit your financial goals. Understanding the intricacies of permanent loans is essential to making informed decisions that align with your long-term financial objectives.

A construction to permanent loan is a great option for borrowers who want to build a single-family home that they intend to live in as their primary residence. This type of financing eliminates the need for two different loans, reducing the time and costs involved in the process. It also eliminates the need for a separate mortgage once the house is completed, saving on closing fees.

In order to qualify for a construction-to-permanent loan, you must meet the same requirements as you would with a traditional mortgage loan. This includes prequalification, a credit application, and a detailed cost estimate from a licensed contractor.

Once the loan is closed, your lender will pay your builder in stages as the construction progresses. Each payment is based on the percentage of the house that has been built and inspected. Once construction is complete, the loan will be converted to a conventional mortgage with principal and interest payments.

Short-Term Loans

There are many options for financing a multifamily property. The most common are traditional loans from a bank, life insurance companies, and agencies like Fannie Mae and Freddie Mac. Other sources include debt funds, online marketplaces, and hard money lenders. The best option for you will depend on your qualifications and goals, so it’s important to research all of your options before applying.

A conventional multifamily loan is ideal for residential investment properties with two to four units, while a CMBS loan is better for apartment buildings with five or more units. Both types of loans offer a variety of terms and interest rates. Investors with higher credit scores are likely to qualify for better rates.

Depending on your agreement with the lender, you can choose to make daily, weekly, or monthly payments. This flexibility allows you to align your payment frequency with your personal financial needs and preferences.

In addition to being able to choose the frequency of your payments, you can also decide how long you want to borrow for. Some short-term loans are available for a few months, while others can be extended for up to three years. The length of the loan will influence the amount you can borrow and how much interest you’ll pay. Some short-term loans also come with prepayment penalties.


There are several steps that must be taken in order to underwrite a multifamily mortgage loan. Often times, these stages can seem intimidating for beginners. However, the overall process can be more manageable than it seems. The key is to take a step-by-step approach that examines the money coming in and out of the property, projecting operating results (known as pro formas), and then determining an appropriate price to pay for the asset to yield an internal rate of return that matches your investment goals.

Throughout this process, you should also evaluate the type of financing you’ll use. Different types of financing will offer different amounts of leverage, so it’s important to choose a financing package that aligns with your business objectives.

For example, some lending institutions specialize in specific multifamily property types and markets. These lenders typically require additional third party reports and impose covenants on loans. These include debt coverage service ratio minimums and occupancy requirements. These restrictions are designed to ensure that your property is well positioned in its market and will continue to operate as intended.

Other lenders provide conventional agency loans that are backed by the Federal Housing Finance Agency, known as Fannie Mae and Freddie Mac. These loans can be used to purchase, refinance or restructure multifamily properties. The lending agencies behind these loans offer competitive rates, have flexible loan size limits, and can be non-recourse.