April 5, 2022

Ten critical considerations for exploring your small multifamily financing options

Ten critical considerations for exploring your small multifamily financing options

When looking to finance your apartment property, picking the right option is critical to your success. The source that you pick should have advantages that align with your investment strategy. What’s important to you? There are more considerations than just interest rates or terms that you must take into account when selecting a financing source. We compiled a few questions to help you narrow it down.

1. Is your property "affordable"?

Many owners and operators miss the opportunity to receive competitive Fannie, Freddie, or HUD financing because of misconceptions about what qualifies as “affordable.” People in the industry think of affordable as purely Section 8 or very low-income housing, but in reality, if you’re renting to workforce tenants – policemen, firemen, teachers, construction workers, etc. - your property is likely to qualify as affordable. This means you’re eligible for significant discounts from Fannie Mae or Freddie Mac. Additionally, if you have a green-certified property or are planning to make eco-friendly improvements, you may also qualify for exceptionally competitive rates and terms. You could save up to half a percentage point depending on agency missions. Agency might be one of your better options, so don’t miss out on this opportunity.

2. Are you willing to put your personal assets at risk for the loan?

If putting your personal assets on the line is a concern of yours, then a non-recourse loan is the way to go. With a non-recourse loan, you cannot be held liable if you default. For example, if for some reason you fail to make payments, the lender can seize the property, but cannot go after personal assets as further compensation. All of the sources, besides banks, often offer non-recourse.

3. Are you planning to hold long-term?

If you’d like to have a long-term mortgage, HUD may be the way to go. They offer the longest term of 35 years. Fannie Mae, Freddie Mac, and life insurance companies offer mortgages up to 30 years. If you’d rather hold for a shorter span, banks offer the shortest term of three years, while Fannie Mae, Freddie Mac, and CMBS offer as little as five.

4. Are you looking to maximize cash-flow through interest-only payments?

Interest-only has its pros and cons – it can initially lower your monthly payment, but once principal kicks in, it has the potential to significantly increase it. All financing sources can provide interest-only options, but banks can be a little more challenging (depending on the institution).

5. Need cash-out proceeds to make property investments?

Some owners find it beneficial to refinance their property for a larger amount than the current loan balance and use that cash for property improvements or updates. All of the sources provide cash-out financing options, but life insurance companies are the most conservative on that front.

6.  What’s your track record? First-time owner or experienced?

If you’re a first-time owner, you’ll want to get financing from the bank. Fannie, Freddie, and HUD have higher standards and require either personal ownership experience or employment history in the multifamily investment industry. If your ownership track record exceeds two properties, you may qualify. While life insurance companies and CMBS fall into this same bucket, their requirements are generally less strict.

7. What are you looking to do? Construct, renovate, acquire, or refinance?

If you’re looking to construct or renovate, banks are the top option. If renovations can be completed quickly, Fannie Mae, Freddie Mac, life insurance companies, and CMBS are another great option, however if many units in a property are going to be offline while the renovation is occurring, the best bet is a bank. 

If you’re looking to acquire or refinance, all options offer competitive lending options. The amount of time it takes to close during an acquisition is an important factor. If you need a quicker turnaround for financing, banks, Fannie Mae, Freddie Mac, life insurance companies, and CMBS would be the way to go. HUD takes a longer time and may not be the best option if a quick close is necessary.

8. Want to control your operating accounts, deposits, or where escrow is held?

Banks generally require depository relationships in order to lend, so when you get a bank loan, you are typically required to maintain an operating account. There is often a minimum amount that needs to be maintained in the operating account. In cases where the minimum is not met, banks often have the right to increase your interest rate to make up for it. 

The other lending sources do not require a depository relationship, but they may require escrows or reserves of some sort, but those terms can be flexible depending on the strength of the deal and nature of the request or leverage.

9. Do you own a specialized multifamily asset such as manufactured housing or capital A affordable?

Fannie Mae, Freddie Mac, and HUD have specific programs for some of these specialized asset types and understand these types of properties inside and out. This can eliminate a lot of questions or headaches that arise because they know what to anticipate and how to resolve common issues, saving you time and money. 

10. Where is your property located? 

Where your property is located can determine which source you should choose. Is your property in the same state as you or the state in which your bank operates? Or do you plan to expand your portfolio beyond state lines? Banks may have restrictions on where they can lend, and if they’re not licensed in the location of your property, they may not be able to help.

Fannie Mae, Freddie Mac, HUD, life companies, and CMBS lend anywhere in the US. Some have different appetites as far as population or market goes. Some lenders are only comfortable lending in the top 25 markets or markets with larger populations. Your lender can provide additional information specific to your property’s location.

Direct vs. intermediary 

These considerations are highly important to factor into your decision-making process when securing financing. Another important decision is whether to enlist the help of a direct lender or intermediary (otherwise known as a mortgage broker). Each option has its pros and cons.

Direct lender

A direct lender is able to work directly with borrowers and can generally approve, underwrite, and fund the loan in-house. Borrowers can access the following financing sources via a direct lender.

  • Freddie Mac
  • Fannie Mae
  • HUD
  • Banks

*Walker & Dunlop is a direct lender for Fannie Mae, Freddie Mac, and HUD. We have robust relationships with life insurance companies, CMBS companies and even banks.


Intermediaries act as a bridge between lenders and borrowers, helping lenders find new opportunities and borrowers explore a variety of lending options at one time. Borrowers can access the following financing sources via an intermediary.

  • CMBS
  • Life Insurance

*Intermediaries can access Freddie Mac, Fannie Mae, and HUD loans, but they must work through a direct lender like Walker & Dunlop. Some intermediaries may also work with banks to help arrange bank financing.

For more information, download our Insider's Guide to Multifamily Financing. To see more of our capabilities or to receive a quote in minutes, check out our website.

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