Multifamily lending has slowed as buyers and sellers argue over asset valuations, interest rates, and the cost of capital. Even as investors wait, opportunistic buyers are finding opportunities. In many markets, buyers are getting back their power to negotiate repairs, upgrades, and other deals. This isn't always a good thing for sellers, but it could make homes more affordable in the long run.
Higher interest rates affect the size of loans that properties can afford to take on. That'sThat's why lenders are making smaller permanent loans to multifamily operators. According to CBRE's Kelli Carhart, the cost of borrowing for apartment properties is up more than 150 basis points from six months ago. That'sThat's impacting sales volume.
When buyers apply for a loan, they must provide the property'sproperty's income and expenses, including current lease agreements, tax bills, and insurance policy declaration pages. They also have to show the lender that their plan for managing the property is sound. As interest rates rise, real estate prices are also likely to fall, says Jim Glassman, a managing director and head economist at JPMorgan Chase. This is because higher mortgage rates limit the amount of money people spend on a home, forcing them to shop for a lower price range.
Multifamily financing is available from financial institutions, government-backed organizations, and private money lenders. These loans are typically based on the borrower's credit score and are used to purchase or refinance the multifamily property. Mortgages on multifamily properties generally require a minimum credit score of 620 or higher. However, some loan products, like HUD financing and Fannie Mae loans, allow borrowers to qualify with lower scores.
The most crucial credit factor is payment history, which accounts for 35% of the score. Lenders want to see that borrowers make payments on time and in full. Having a mix of different types of debt is also helpful to lenders. If you have a variety of revolving and installment accounts, it shows lenders that you can responsibly manage debt and make payments on time.
Having multiple lines of credit is another positive, but too many may indicate that you're a high-risk borrower. Keeping your credit utilization low and paying off balances is an effective way to boost your score. Multifamily lending continues to slow due to rising interest rates and higher mortgage costs. Consequently, home sales have declined, and contract cancellations have remained elevated.
Fortunately, for those interested in investing in multifamily property, owner-occupied properties provide an opportunity to obtain attractive financing options. Owner-occupied financing offers lower down payments, less onerous personal guarantees, and more favorable interest rates than investor loans. Banks need to be in the business of holding on to properties that aren't generating income. They'reThey're in the business of making money through mortgage loans and interest payments.
That'sThat's why it's not surprising that they would rather sell a property than hold it. These "nonperforming assets" are a burden to the bank'sbank's bottom line and a drain on their resources. Purchasing bank-owned properties is a strategy for investors looking for opportunities in today'stoday's market, but it comes with some risks. First, the bank may have yet to thoroughly inspect the property before selling it.
Second, the property may be subject to liens or other title issues. These can be costly to resolve, particularly if you're buying the property for rental purposes. Fortunately, a bank-owned property can be an excellent investment if you know what you're doing. But like any other real estate purchase, it's essential to consider your options before making a final decision.