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????A guide to help multifamily investors qualify for multifamily loans,
A guide to help multifamily investors qualify for multifamily loans, with current market statistics reflecting higher interest rates and high inflation:
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Check your credit score: Your credit score plays a crucial role in getting approved for a multifamily loan. In 2022, the average credit score for multifamily borrowers was 680. With rising interest rates and high inflation, lenders may be more cautious when underwriting loans. Make sure your credit score is in good standing before applying for a loan.
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Prepare your financial documents: Lenders will require you to submit financial documents such as tax returns, bank statements, and financial statements. With higher interest rates, lenders may require higher down payments to offset the increased risk. In 2022, the average debt service coverage ratio (DSCR) for multifamily loans was 1.25. Make sure you have all your financial documents ready and organized to demonstrate your ability to repay the loan.
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Have a solid business plan: Lenders want to see a well-prepared business plan that outlines your goals and how you plan to use the loan funds. In a high-inflation environment, it’s important to account for inflation and rising interest rates in your business plan. According to a 2021 survey by the National Multifamily Housing Council, 94% of lenders require a business plan. Make sure your business plan includes a clear strategy for generating rental income and demonstrates your ability to manage the property effectively.
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Maintain a low loan-to-value (LTV) ratio: Lenders use the LTV ratio to determine the level of risk associated with a loan. With rising interest rates and high inflation, lenders may be more cautious when underwriting loans. In 2022, the average LTV ratio for multifamily loans was 75%. Try to keep your LTV ratio below this average to increase your chances of getting approved for a loan.
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Look for lenders with experience in multifamily loans: Multifamily loans are complex, and lenders with experience in this type of lending can offer more favorable loan terms. With rising interest rates and high inflation, lenders with experience in high-inflation environments may be better equipped to navigate the current market conditions. In 2021, 65% of multifamily borrowers obtained financing from a local or regional bank. Look for lenders who specialize in multifamily loans and have experience working with investors like you.
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Show a strong debt service coverage ratio (DSCR): The DSCR measures your property’s ability to generate enough rental income to cover the loan payments. In 2022, the average DSCR for multifamily loans was 1.25. With rising interest rates, lenders may require a higher DSCR to offset the increased risk. Aim to have a DSCR higher than this average to demonstrate your ability to repay the loan.
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Consider pre-approval: Pre-approval can give you a better idea of how much you can afford to borrow and can increase your bargaining power when negotiating with sellers. With higher interest rates, pre-approval can also help you lock in a lower interest rate before rates rise further. In 2022, the average loan amount for multifamily loans was $8.6 million.
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Be prepared to make a larger down payment: With rising interest rates and high inflation, lenders may require higher down payments to offset the increased risk. In 2022, the average down payment for a multifamily loan was 22%. Be prepared to make a larger down payment than you would have in a low-interest-rate environment.
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Review loan terms carefully: Before signing a loan agreement, review the loan terms and conditions carefully. Make sure you understand the interest rate, fees, and repayment schedule. With rising interest rates, it’s important to consider
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