Therefore, another consideration for
your clients to keep in mind is that the
property is in good condition prior to
Be aware of whether the proper-
ty is subject to a Housing Assistance
Payment contract (HAP) or some other
affordable-housing contract. Affordable-
housing contracts are agreements with
the U.S. Department of Housing and
Urban Development (HUD) and pertain
to buildings that provide rental assis-
tance to low-income individuals and
families. A HAP contract, in particu-
lar, is used to provide Section 8 rent
assistance to tenants under HUD’s
housing-choice voucher program.
Buildings subject to such contract
requirements are eligible for different
types of financing, but they are generally not eligible for conventional multifamily loans.
In addition to restrictions on the types of
assets that are available for conventional
multifamily financing, potential borrow-
ers also must meet certain qualifications
in order to have the best shot at receiv-
ing financing for an eligible property.
That means, as a mortgage originator,
you need to vet your borrower.
Does the borrower have experience
owning apartments? While it is not
impossible for a first-time multifamily
owner to receive a loan, experience
definitely helps with the application
process here. Ideally, the owner will
have had experience owning properties
of similar size or bigger — and in the
same market. Another determinant
factor in the loan process is the borrow-
er’s net worth, which should equal to or
exceed the loan amount requested.
Does the borrower have at least
nine months principal and interest in
cash on hand or marketable securities?
Nine months of the annual debt service
(principal and interest) usually compris-
es about 7 percent to 8 percent of the
loan amount. This amount in cash on
hand or marketable securities must be
available to the borrower pursuing the
loan. Marketable securities refer spe-
cifically to nonretirement investments.
Retirement investments, unfortunately,
are not considered.
You’ll also have to confirm that the
borrower does not have any history of
bankruptcy, foreclosure or deed in lieu.
A borrower will ideally have a clean
financial record and adequate credit
scores — with a credit score above 650
As with the financial history, a borrower also should confirm that he or
she is not currently involved in any
legal proceedings involving the asset or
borrowing entity while seeking a multifamily loan. If the borrower is involved
in a lawsuit, some situations are eligible for a waiver for acceptability on a
case-by-case basis. Always let your
lender know upfront about any issues
that could cause a potential problem.
n n n
Acquiring a multifamily property for the
first time can be an exciting experience
for both the borrower and the mortgage
originator handling the transaction. For
residential mortgage originators, if a
client asks about buying or refinancing an apartment building, having the
necessary information on hand, and
the right relationships with lenders, will
allow you to up your game and achieve
a new level of accomplishment in your
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upfront about any issues that
could cause a potential