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Multifamily Finance Blog
Last updated on Feb 19, 2023
6 min read
by Jeff Hamann

Getting a Multifamily Refinance: Your 2023 Guide

Our multifamily refinancing guide gets you everything you need to get started on improving your financing terms.

In this article:
  1. Understanding Multifamily Refinancing
  2. The 6 Steps in the Multifamily Refinancing Process
  3. 1. Evaluate Your Goals
  4. 2. Gather Financial Information
  5. 3. Shop for Lenders
  6. 4. Prepare Your Property
  7. 5. Apply for Your Loan
  8. 6. Close the Loan
  9. Types of Multifamily Refinance Loans
  10. Fannie Mae Loans
  11. Freddie Mac Loans
  12. HUD Loans
  13. HUD 223(f) Loans
  14. HUD 223(a)(7) Loans
  15. Bank Loans
  16. Life Company Loans
  17. CMBS Loans
  18. Some Useful Tools
  19. Current Rates
  20. Multifamily Mortgage Calculator
  21. Loan-to-Value Calculator
  22. Conclusion
  23. Related Questions
  24. Get Financing
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Multifamily refinancing is a popular option for property owners who want to lower their monthly mortgage payments, shorten the length of their loan, or take advantage of lower interest rates. Refinancing a multifamily property can be a complex process, but understanding the basics and preparing in advance can make the process smoother and more successful.

Understanding Multifamily Refinancing

Multifamily refinancing involves taking out a new mortgage on a multi-unit property with the goal of improving the terms of the original loan. This can be done for a variety of reasons, including reducing the interest rate, changing the term length, consolidating debt, or getting equity out of a property.

The 6 Steps in the Multifamily Refinancing Process

1. Evaluate Your Goals

Determine why you want to refinance your multifamily property. Do you want to lower your monthly payments, extend the loan term, or consolidate debt? Are you looking to get a cash-out refinance? Knowing your goals will help you determine the best type of refinancing loan for your needs.

2. Gather Financial Information

Collect financial information about your property, including the mortgage balance, monthly rent income, and any outstanding debts. You will also typically need to have your property appraised, as lenders will offer a maximum loan amount based on your property’s current market value. All of this information will be used to determine your eligibility for refinancing.

3. Shop for Lenders

Research and compare lenders to find the best refinancing option for your needs. Consider factors such as interest rates, loan terms, and fees when making your decision. Traditionally, this can take a very long time and will require separate loan applications — with different lenders requiring different documentation.

The Janover platform has revolutionized this process — we will shop your deal to hundreds of lenders, providing you with multiple quotes to compare. Just take 60 seconds and fill in the form below.

4. Prepare Your Property

Make any necessary repairs or renovations to your property to improve its value. If you have any deferred maintenance issues, now is the time to handle them — unless you are refinancing to provide for those costs. Meaningfully address any vacancy issues to boost your property’s value.

All of these improvements can help you secure a lower interest rate and better loan terms.

5. Apply for Your Loan

Submit a loan application and provide the necessary financial information and documentation to the lender. The lender will then review the information and make a decision on your loan.

6. Close the Loan

Once the loan is approved, sign the loan documents and close the loan. Your new mortgage payments will begin according to the terms of your refinancing agreement.

Types of Multifamily Refinance Loans

There are several types of multifamily refinancing loans to choose from.

Fannie Mae Loans

Fannie Mae loans are a popular refinancing option for multifamily properties. These loans are backed by the Federal National Mortgage Association, or Fannie Mae, which provides stability and security to the mortgage market. 

Fannie Mae offers a variety of loan products, including fixed- and adjustable-rate loans, with competitive interest rates and flexible underwriting guidelines. These loans are available for properties with five or more units.

Freddie Mac Loans

Freddie Mac loans are also backed by a government-sponsored entity, the Federal Home Loan Mortgage Corporation. Like Fannie Mae, Freddie Mac offers a range of loan products with competitive interest rates and flexible underwriting guidelines. These loans are designed to meet the needs of borrowers in the multifamily housing market, and can be used for refinancing, acquisition, and rehabilitation. 

Freddie Mac's loan programs are available for properties with five or more units, and offer a range of benefits, including lower down payment requirements and flexible loan structures.

HUD Loans

HUD multifamily loans, also known as FHA multifamily loans, are government-insured loans administered by the Department of Housing and Urban Development (HUD). There are two main programs that offer refinancing choices: the HUD 223(f)( and HUD 223(a)(7) loans.

HUD 223(f) Loans

The most popular type of HUD loan, the 223(f) loan can be used for acquiring or refinancing multifamily properties. These loans have a maximum term of 35 years — and they are fully amortizing. Additionally, the loans are non-recourse and assumable and also bear a fixed interest rate for the life of the loan.

HUD 223(a)(7) Loans

HUD 223(a)(7) loans are exclusively for current HUD borrowers. They are typically used when a borrower is able to get a lower interest rate to improve a property’s cash flows. These loans have very short approval timelines.

Bank Loans

A bank loan is the most commonly used financing option for multifamily properties. These loans are provided by banks, credit unions, and other similar institutions. Bank loans can be either fixed-rate or adjustable-rate, and offer competitive interest rates and flexible underwriting guidelines. Bank loans are available for properties with five or more units, and can be used for a variety of purposes, including refinancing, acquisition, and rehabilitation. No two bank loans are the same — so it really pays to shop around to find the best terms.

Life Company Loans

Life company loans are financing options for multifamily properties that are provided by life insurance companies. These loans offer competitive interest rates and flexible underwriting guidelines, and are available for properties with five or more units. 

Life company loans can be either fixed-rate or adjustable-rate, and are typically used for refinancing, acquisition, and rehabilitation. The loan structure and repayment terms of life company loans can vary, so it is important to carefully consider the terms and conditions before choosing this type of loan. Life company loans are typically only available for high-quality properties in strong, primary markets.

CMBS Loans

Also known as commercial mortgage-backed securities loans, CMBS loans are financing options for multifamily properties that are backed by pools of commercial mortgages. These loans may offer fixed or floating interest rates and have somewhat flexible underwriting guidelines, typically prioritizing the property’s strength over the borrower’s credit history. 

The underwriting process for CMBS loans can be more complex and time-consuming than other types of loans, so it is important to carefully consider the terms and conditions before choosing this type of loan. Additionally, CMBS loans are partially amortizing, meaning that there will be a balloon payment at the end of the loan term — and paying the loan down ahead of time can be difficult, as a defeasance prepayment penalty is typically in effect for most of the term.

Some Useful Tools

Here are a couple useful tools to help you as you plan your next refinance.

Current Rates

Multifamily Mortgage Calculator

Find out what your monthly debt service costs will be, along with a full amortization table, with our calculator.

Loan-to-Value Calculator

Not sure how large a loan your lender will give you? Try our loan-to-value calculator and see how your ideal loan amount compares to your property's value.

Conclusion

Multifamily refinancing can be a beneficial option for property owners who want to improve the terms of their loan. Understanding the steps in the process and familiarizing yourself with the different types of refinancing loans can help you make informed decisions and achieve your goals.

Related Questions

What are the advantages of Fannie Mae loans?

Highly competitive pricing, the ability to lock in rates early, and high loan-to-value (LTV) ratios of up to 80%. In addition, these loans are non-recourse, which means that borrowers are not personally liable for any deficiency if the property is sold for less than the outstanding balance of the loan.

Are there any disadvantages to obtaining a Fannie Mae loan?

One is that they are selective about the properties they will finance. They typically require that properties meet certain standards in terms of condition and location, and they may not finance properties that do not meet these criteria. In addition, Fannie Mae loans may require financially strong borrowers, as they typically have strict underwriting guidelines and may require a higher credit score and down payment than some other types of loans.

What is the best type of loan for apartment investing?

Generally, agency loans from Freddie Mac or Fannie Mae are often the best option. These non-recourse loans offer low interest rates, as well as LTVs up to 80% and amortizations up to 30 years. For larger loans, CMBS loans can also be a great way, offering low interest rates and some of the most lenient borrower requirements out there. HUD multifamily loans are also a fantastic option for buy and hold investors, offering LTVs up to 85% and DSCRs as low as 1.18x for market-rate properties.

What is the Freddie Mac SBL program?

The Freddie Mac Small Balance Loan (SBL) program is one of Freddie’s most popular apartment lending programs. The SBL program offers apartment financing in amounts from $1 million to $7.5 million.
Learn more →

What are the benefits of refinancing a multifamily property?

The benefits of refinancing a multifamily property include the ability to adjust loan terms, potentially lower interest rates, and access to cash-out refinance options. Adjusting the loan term might provide the option to choose a longer-term, fixed-rate loan to avoid economic uncertainties in the future and lower your monthly payments. A refinance might also allow you to shorten your loan term in order to pay the property off faster. Qualifying for a lower rate now might save you thousands of dollars throughout the lifespan of the loan. A cash-out refinance might allow you to tap into the equity you have accumulated over the years, replacing the old funding with a new loan that is larger than the amount needed to pay off the old note, as explained by Forbes. The difference between the two loans can be kept by the borrower and used for property upgrades or investing in another asset.

What are the steps involved in refinancing a multifamily property?

The steps involved in refinancing a multifamily property include:

  • Having enough equity in the property (at least 25% of equity, with a loan-to-value ratio (LTV) that cannot typically exceed 75%)
  • Preparing documents such as recent W-2 forms or pay stubs, current lease agreements for the property, and the most recent two years worth of personal and business tax returns
  • Having a debt-to-income ratio (DTI) of 36% or lower, and under no circumstances should it be higher than 50%
  • Being prepared to answer tough questions about the property's value and credit score
  • Expecting closing fees of around $5,000, which usually varies depending on the size of the loan and the location of the property

For more information, please see Why You Should Refinance Your Multifamily Property Now and 5 Ways to Find the Best Multifamily Refinance in a Recession.

What are the different types of multifamily refinance loans?

The different types of multifamily refinance loans are conventional loans, which are typically offered by banks and other financial institutions, and are often used to purchase or refinance existing properties. Conventional loans may be offered at a fixed or floating interest rate, and they often require a substantial down payment and a good credit score. Refinancing loans are used to refinance existing debt on a multifamily property. There are several reasons why an investor would choose to refinance, such as to take advantage of better rates, to take advantage of a property's improved performance, or to avoid a balloon payment at the end of the loan term.

Sources:

What are the qualifications for a multifamily refinance loan?

To qualify for a multifamily refinance loan, borrowers must typically meet certain qualifications, including income and debt ratios. Lenders will consider the borrower's income and debt ratios to determine their ability to repay the loan. For more information, please visit Multifamily Financing: Your Comprehensive Guide.

What documents are needed to apply for a multifamily refinance loan?

In order to apply for a multifamily refinance loan, you will need to provide the following documents:

  • Apartment Finance Document Templates, which includes:
    • Personal Financial Statement
    • Business Financial Statement
    • Rent Roll
    • Lease Abstract
    • Operating Statement
    • Property Appraisal
    • Environmental Report
    • Property Inspection Report
    • Title Report
    • Survey

What are the current interest rates for multifamily refinance loans?

The current interest rates for multifamily refinance loans are 4.95% - 7.05%, according to Multifamily Mortgage Rates.

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