An FHA multifamily cash out loan is a refinancing tool for investors. The Federal Housing Authority (FHA) deems a property multifamily if it is five units or more, each unit must have working kitchens and complete bathrooms.
This type of loan is non-recourse except for normal carve-out regulations. Non-recourse means the borrowers are using the apartment as collateral. If the borrower defaults on the loan, the lender agrees to accept the property and its rental income as the only source of repayment on the loan. The borrower is not personally liable.
The FHA multifamily cash out loans are one type of financing products investors have available to them. This product has many benefits, such as the non-recourse factor we mentioned. The loan amount is up to 83.3% loan-to-cost (LTC).
Loan-to-cost is a figure used in multi-family lending that calculates the cost to build the apartment versus the financing offered by the loan. This loan does not use the common loan-to-value (LTV), which factors in the financed amount versus the value of the real estate.
The multifamily cash out loan amortizes up to 35 years and has fixed, low interest rates. The minimum debt coverage (DCR) is 1.2. This ratio defines how much liquidity or cash the borrowers must have set aside to pay for debts.
This loan is assumable. FHA will allow another borrower who is credit worthy to take over the loan. The new borrow must be at least equal to or greater than the existing borrower in credit standings. The new borrower must complete the FHA application process and receive full FHA approval to assume the loan.
To find out more details, benefits, and how you can take advantage of the FHA multifamily cash out refinance loan contact us today.