Investment benefits of multi-family loans

September 15, 2017

Multi-family loan is a credit product, which is usually used referring to a collective mortgage scheme to purchase a condominium or a housing building with several units to lease them and get rental payments from residents. Such a purchase can become a great long-term investment. Lets take a closer look at the details of this scheme.

The requirements for the mortgage on personal housing are slightly different from typical individual mortgage. In order to qualify for a multi-family loan the purchasing property must have at least four units. Prepare yourself to pay at least 25-30% worth of down payments and keep in mind that the amount of down payment may increase if the property is in poor condition and requires serious repair works.

Application process

The document package will be impressive, because you will need to collect papers, which cover the financial status of both spouses and the details about the property such as the list of residents and lease agreements, financial report, housing tax burden, utility bills and contracts with home service contractors. In general, you will need to prove that the property can generate enough income in rental payments to self-pay the mortgage every month. Each lender will require specific package of documents. You can compare loans online proceed to the application process with the one who meets your needs.

Interest rates

The interest rate for multi-family credits is usually higher than conventional mortgage, because borrowers are expected to generate profits from the property. The amount of this profit is the key factor for interest rate policy. When you buy small residential property, your lender will pay close attention to the individual credit scores of the loan participants.

In case if you fail to repay the loan, it can be secured by the purchasing property or by the personal belongings of involved borrowers — it depends on the policy of the particular lender, so, read the papers carefully and don't hesitate to ask for professional help of a qualified lawyer and accountant.

If your inner entrepreneur is charmed by mortgage investment schemes, consider refinancing your current mortgage liabilities and adding new property into your portfolio. See details in our article: “Second mortgage: advantages and pitfalls”.

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