How does mortgage for income property differ?

[Mark Hu]

I was wondering if there were significant differences in obtaining a mortagage for income property (apartment) versus a personal dwelling.

I believe interest rates for income property mortgages are higher, and it makes a difference in the rules if the property is being foreclosed on. Are their other important differences?

[Bryan Hancock]

Mark...you need to get away from using gross multipliers and start to analyze deals properly. Look through old forum posts on people analyzing apartment complex deals. There are tons of tools on BP and there are even some financial models you can use in the new file share place.

Anything over 5 units becomes CRE money and the GSEs stop buying it. Thus the rate will be higher. The upside is that the larger buildings offer better yield as compared with SFRs. CRE debt will have all sorts of things like lockouts, prepayment penalties, floating rates past some date (in many cases), etc. Getting funding for loans smaller than $500k will also be a challenge and you should likely expect to pay more for CRE financing for smaller buildings. The terms will likely be less attractive too...like shorter amortization periods.

So yeah...there are many differences. Do some searches on Darryl Dahlen's posts and study them to learn more about the differences.