The best deal in the world doesn't matter if you can't finance it. And in the $500K-$2.5M multifamily space, financing is more nuanced than most investors realize. You have more options than a conventional bank loan — and choosing the right one can mean the difference between a deal that works and one that doesn't.
Key insight: The loan product you choose affects your IRR more than a 50-basis-point difference in cap rate. A 30-year amortization at 6% beats a 20-year at 7% on cash flow, even though the rate is "only" 1% different.
Loan Comparison: At a Glance
| Loan Type | LTV | Rate (2026) | Amortization | Best For |
|---|---|---|---|---|
| Fannie/Freddie SBL | Up to 80% | 5.5-6.5% | 30 years | Stabilized, 90%+ occupancy |
| Local bank portfolio | 70-75% | 6.5-8.0% | 20-25 years | Value-add, flexibility |
| DSCR | 65-80% | 7.0-9.0% | 30 years | No income verification |
| SBA 504 | 85-90% | ~5.0-5.5% (CDC) | 20-25 years | Owner-occupied |
| Seller financing | 70-90% | 5-7% | Negotiable | Off-market, estate sales |
| Hard money | 60-70% | 10-14% | Interest-only | Bridge/rehab only |
Agency Loans (Fannie Mae / Freddie Mac)
The gold standard for stabilized multifamily. Lowest rates, longest amortization, non-recourse available.
Requirements:
- DSCR 1.25x+
- 90%+ occupancy for 90 days
- Clean T-12 operating statement
- Phase I environmental, appraisal, property condition assessment
- Minimum loan: $750K (Fannie) / $1M (Freddie)
Pro tip: Agency loans take 60-90 days to close. If you're competing against cash buyers or hard money, you need a longer due diligence period in your PSA.
Local Bank Portfolio Loans
Banks hold these on their own balance sheet, giving them flexibility that agency lenders can't match.
- 70-75% LTV, 20-25 year amortization, 5-7 year term (balloon)
- Full personal guarantee required
- Can close in 30-45 days
- Flexible on property condition and occupancy
Pro tip: Build a banking relationship before you need a loan. Open a business account, deposit rental income, meet the commercial lending team. When you bring a deal, they already know you.
DSCR Loans
Qualify based on the property's cash flow, not your personal income. No tax returns, no W-2s, no DTI calculation.
- 65-80% LTV, 30-year fixed or 5/1 ARM
- Minimum DSCR: 1.0x-1.25x
- Non-recourse available
- No limit on number of properties
When DSCR makes sense: You're a full-time investor with significant write-offs that make your tax returns look terrible, but your properties generate strong cash flow. Or you already have 10+ conventional mortgages.
SBA 504 Loans
Underutilized in multifamily. The SBA 504 provides 10-15% down payment with below-market fixed rates.
| Component | Amount | Rate |
|---|---|---|
| Bank portion | 50% | Market rate |
| CDC portion | 40% | Fixed, below market (~5.0-5.5%) |
| Borrower equity | 10% | Your cash |
- Must be owner-occupied (you or your business occupies 51%+ of residential space)
- Full amortization — no balloon risk
- Lengthy process: 90-120 days
Who this works for: House hackers buying larger multifamily (5+ units). The 10% down on a $1M property ($100K) is far less than the 25-30% required by bank or DSCR loans.
Seller Financing
More common in the $500K-$2.5M range than you'd think. Private sellers — especially those who've owned for decades — often prefer installment payments over a lump sum for tax reasons.
How to find seller financing deals:
- Properties owned by the same person for 20+ years (high capital gains = motivation to defer via 1031 exchange)
- Estate sales where heirs want income, not property
- Properties listed 90+ days that aren't selling
- Off-market outreach: "Would you consider carrying the note?"
Typical terms: 10-30% down, 5-7% rate, 5-10 year balloon
Warning: Always have a real estate attorney draft the promissory note and deed of trust. Seller financing without proper documentation leaves you unprotected.
Hard Money / Bridge Loans
Only use when: The property requires heavy renovation before it qualifies for permanent financing, AND the after-rehab value supports a profitable refinance.
- 60-70% LTV, 10-14% rate, 2-4 origination points
- 6-24 month term — interest only
- This is a BRRRR strategy: Buy, Rehab, Rent, Refinance, Repeat — see our value-add renovation playbook for the rehab execution plan
How to Improve Your Approval Odds
- Liquidity reserves. Lenders want 6-12 months of debt service in cash reserves post-closing.
- Experience. First-time commercial borrowers face scrutiny. Mitigate by having an experienced property manager or partner — see our guide on building your investment team.
- Strong operating statement. Present a professional package: rent roll, T-12, capital plan, market comps.
- Clean credit. 680+ for most commercial loans, 620+ for FHA.
Pre-Qualification Checklist
Before making an offer, have these ready:
- [ ] Personal financial statement (assets, liabilities, net worth)
- [ ] 2 years of tax returns (for bank/agency loans)
- [ ] Schedule of real estate owned (all properties with balances and income)
- [ ] Proof of liquidity (bank/investment statements)
- [ ] Business entity documents (LLC operating agreement, EIN)
Related Reading
- House Hacking Houston: Live Free While Building Wealth — How to use FHA and VA loans to buy your first multifamily with minimal down payment
- The Complete Guide to 1031 Exchanges for Multifamily Investors — Defer capital gains taxes and roll proceeds into your next property
- How to Underwrite a Multifamily Deal in 30 Minutes — Model your financing structure alongside the full deal analysis
properlocating's acquisition model lets you model any financing scenario — adjust LTV, rate, and term to see how different structures affect your IRR. Try it free.