How to Finance Your First Multifamily Property
Stepping into multifamily real estate is a major milestone—and financing your first deal is often the biggest hurdle. But here’s the good news: there are more financing options than you might think, even if you’re just getting started.
Whether you’re looking at a small 4-plex or a larger apartment complex, this guide will walk you through the key strategies for financing your first multifamily property.
Step 1: Understand the Property Type
Multifamily properties fall into two categories:
Residential (2–4 units): Financed with traditional residential loans
Commercial (5+ units): Financed with commercial lending products, which focus more on the property’s performance than your personal income
Knowing which bucket your deal falls into will determine what kind of loan you’ll need.
Step 2: Know Your Financing Options
1. Conventional Loan (2–4 Units)
For smaller multifamily properties, you can use a standard loan from a bank or credit union.
✅ Pros: Lower interest rates, longer terms
⚠️ Cons: Requires good credit and income documentation
Bonus: You can house hack by living in one unit and renting out the others—qualifying you for better terms.
2. FHA or VA Loan
If you’re a first-time homebuyer (or a qualifying veteran), you may qualify for low- or no-down-payment loans—even on multifamily homes up to 4 units.
✅ Pros: Down payments as low as 3.5% (FHA) or 0% (VA)
⚠️ Cons: Must live in one unit for at least one year
3. Commercial Loans (5+ Units)
Lenders will evaluate the property’s Net Operating Income (NOI) and Debt Service Coverage Ratio (DSCR) instead of just your personal finances.
✅ Pros: Based on the deal, not just you
⚠️ Cons: Higher interest rates and shorter terms (typically 5–10 years)
4. Seller Financing
Sometimes the seller is willing to “be the bank” and finance a portion—or all—of the purchase.
✅ Pros: Flexible terms and lower closing costs
⚠️ Cons: May require a strong relationship or track record
5. Partner Up
If you’re short on capital or experience, consider partnering with someone who brings what you lack—whether it’s funds, loan qualifications, or deal experience.
✅ Pros: Shared risk, faster entry
⚠️ Cons: Requires clear agreements and shared vision
6. Private & Hard Money Lenders
Great for short-term holds or value-add projects where traditional financing doesn’t fit.
✅ Pros: Fast approvals and flexible criteria
⚠️ Cons: Higher interest rates, shorter terms—ideal for bridge financing
Step 3: Prepare Your Financials
Lenders want to see:
A solid credit score (usually 680+ for commercial loans)
Down payment (15–30% depending on the loan type)
Reserves (3–6 months of expenses)
A clean, complete personal financial statement
If you're investing with partners or syndicating a deal, be prepared to share a business plan, pro forma, and track record (if any).
Step 4: Educate Yourself & Build Relationships
Financing is about more than numbers—it’s about confidence. Surround yourself with experienced professionals:
Mortgage brokers who specialize in multifamily
Real estate attorneys
Property managers
Mentors or coaches who’ve done what you want to do
Don’t be afraid to ask questions and shop around—the right lender is a key partner in your investing journey.
Key Takeaways:
Know your property type (2–4 units = residential, 5+ = commercial)
Explore all your financing options—FHA, commercial, partners, seller financing
Prepare your financials and learn the lingo
Leverage the experience of others when needed
Most importantly: start where you are and take the first step
Ready to Take Action?
At Momentum Multifamily, we help investors—whether you're on your first deal or your fiftieth—find opportunities, build confidence, and connect with the right partners.
