Multifamily Mortgage, Now

Multifamily mortgages have faired relatively well compared to other commercial mortgages in the current credit crisis. The reason is the historic stability of this asset class. Borrowers can still expect some of the highest levels of financing, the longest amortization schedules and lowest fixed rates in the entire commercial business today.

As fair as loan to values, multifamily mortgages are still going up to 80% on purchases and 75% LTV on refinances. Compare this to all other investment property loans that are now restricted to 60 – 65% loan to value. The main reason for this high level of leverage, is the government support via Freddie Mac and Fannie Mae. These institutions buy the apartment loan debt from banks and lenders that fund them – so the increased risk, due to the high levels of leverage are passed onto the government and not carried by the funding banks.

Most conventional commercial bank financing is capped at 20 year amortization schedules on building types besides multifamily.  It is common to get 30 year financing and a few programs go to 35 and even 40 years on multifamily mortgage. These longer amortization schedules reduce monthly payments, which have an interesting impact on the debt coverage ratio, increasing the amount of debt the property can support. Multifamily mortgage Debt coverage ratios are normally set at a relatively low 1.2. Some banks have raised this to a 1.25 due the credit crisis, but compared to the 1.3 that many property types receive this is still aggressive.

Interest rates have been very unpredictable during the last year. Margins have jumped from as low as 150 basis points, before the credit crisis to 350 over the treasuries. Things seem to have stabilized more on this regard and we are currently seeing rates most in the upper 5%’s to low 6%’s on most multi family loans between $400,000 – $5,000,000.

All in all, underwriting standards have tightened within the multifamily arena, but it remains one of the most liquid sectors of the business. Knowing which banks and lenders are still actively funding loan requests and which offer the lowest rates/best terms remains the key in the market.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. 248 885-8797. investment property loans or ]apartment loans

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