There are two types of loans you can find if you’re trying to invest in real estate: multifamily loans and commercial real estate loans. Despite their apparent similarity, the two differ significantly. Knowing the distinctions between the various loan types will enable you to choose the one that will best serve your investing objectives.

What are Multifamily Loans?

A particular kind of business loan aimed at properties with two or more units is known as a multifamily loan. Mostly residential in nature, these properties include apartment complexes, townhomes, and condominium buildings. Investors can use multifamily loans to finance the acquisition or refinancing of these kinds of properties.

Multifamily loans frequently feature lower interest rates and longer repayment terms than conventional commercial real estate loans since they are frequently backed by government-sponsored organizations like Fannie Mae and Freddie Mac. These loans can have fixed or adjustable rates, and their amortization duration is usually between 20 and 30 years.

What are Commercial Real Estate Loans?

Finance for non-residential properties, such as office buildings, retail establishments, warehouses, and hotels, is provided by commercial real estate loans. Due to the fact that they are made to assist investors in purchasing or refinancing commercial properties, these loans are often used for assets that produce income.

Lenders from a range of institutions, such as banks, credit unions, and private lenders, may provide collateral for commercial real estate loans. These loans can have fixed or adjustable interest rates, and their amortization length is usually between 15 and 25 years.

What are the Key Differences between Multifamily Loans and Commercial Real Estate Loans?

There are several significant variations between multifamily loans and commercial real estate loans, despite the similarities that may initially appear. They consist of:

1. Property Type: The type of property that multifamily loans and commercial real estate loans are used to fund is the key distinction between the two. While commercial real estate loans are made for non-residential assets, multifamily loans are made exclusively for residential properties with two or more units.
2. Loan Terms: The loan terms are one of the main distinctions between these two loan types. Multifamily loans frequently offer lower interest rates and longer repayment terms than commercial real estate loans since they are frequently backed by government-sponsored organizations like Fannie Mae and Freddie Mac. On the other side, commercial real estate loans may have a wider range of lenders behind them, greater interest rates, and a shorter repayment period.
3. Loan Amounts: The amount of funding available varies between loans for multifamily properties and loans for commercial real estate. Commercial real estate loans may only be accessible for up to 65% of the value of the property, whereas multifamily loans may be available for up to 80% of the value of the property.
4. Eligibility Requirements: Finally, there are various eligibility standards for commercial real estate loans and multifamily loans. For multifamily loans, the borrower may need to have a particular amount of real estate investing expertise, whereas for commercial real estate loans, the borrower may need to have a certain amount of net worth or liquidity.

Which Loan is Right for You?

Your investment objectives and the kind of property you want to finance will determine whether you choose a multifamily loan or a commercial real estate loan. A multifamily loan can be your best choice if you’re wanting to invest in residential buildings with two or more units. A commercial real estate loan can be better suitable if you want to invest in non-residential properties.

Also take into account your financial status and level of experience. Loans for multifamily properties may be easier to obtain for persons with less real estate investing experience, whereas loans for commercial properties might need for greater financial stability.

Commercial real estate loans and multifamily loans have various uses and distinct characteristics. You can choose which loan is best for your investment goals and property type by being aware of the fundamental distinctions between the two. Before applying for any loan, keep in mind to take your financial situation and level of experience into account. You can choose the best financing solution for your real estate investment and meet your investment objectives with careful planning and research.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.