If you’re like many people, you want to buy a duplex or multifamily property for sale in Silicon Valley – but if you’ve never done this before, where do you even begin? This guide explains.

How to Finance a Multifamily Property in Silicon Valley

Buying a duplex or multifamily property in Silicon Valley may be the best investment you’ll ever make, but for most people, this kind of a purchase involves financing. Unless you have several hundred thousand dollars lying around, here’s what you need to know:

  • Multifamily homes with up to four units are generally considered residential for financing purposes
  • Multifamily homes with five or more units are generally considered commercial real estate for financing purposes
  • You have several options for financing, whether the home you want to buy has four or fewer units or five or more units

Financing a Four-Unit (or Smaller) Multifamily Property

Typically, a standard conventional mortgage is the right choice to finance a four-unit or smaller multifamily property. You can apply with a bank, credit union, or mortgage lender – the process is the same as it would be if you were purchasing a single-family home.

Conventional mortgages are mortgage loans that conform to Fannie Mae and Freddie Mac underwriting guidelines. In these types of loans, lenders consider your:

  • credit score
  • credit history
  • income
  • assets
  • debts

Usually, the lending limits are capped on conventional mortgages. That means you can only borrow so much. If you’re not sure what the current caps are, you should talk to your real estate agent – she can let you know, as well as point you in the right direction when it comes to finding a lender.

Related: Steps to buying a multi-family property

Do You Need a Higher Down Payment as an Investor?

You most likely need a higher down payment as an investor than you would if you were buying a single-family home to live in. Generally, you need a 20 percent down payment to buy a single-family home and avoid private mortgage insurance, or PMI. However, in an investment loan, you may have to come up with 25 to 30 percent of the home’s purchase price as a down payment; that’s because lenders assume more risk with investment properties than they do with single-family, owner-occupied homes.

Related: How to start real estate investing with an owner-occupied property

Financing a Five-Unit (or Larger) Multifamily Property

In most cases, you need a commercial loan to buy a multifamily property that has five or more units. This requires different paperwork – and typically has a different process, as well.

The terms of commercial loans generally range between 5 and 20 years, though they can vary. The amortization period is often longer than the loan’s term, as well – so you may sign up for a loan that has a term of say, 10 years, but an amortization period of 30 years. In that loan, you’d make payments for a decade as if your loan was going to be paid off in 30 years, but you’re responsible for coming up with a balloon payment at 10 years to pay off the entire remaining  balance.

Are You Buying or Selling a Duplex, Triplex or Fourplex in Silicon Valley?

If you’re selling a duplex, triplex or fourplex in Campbell, Cambrian Park, Los Gatos, San Jose, Santa Clara, Saratoga, Willow Glen or another community in Silicon Valley, we’re here to help. Call today or fill out the form below to find out about our innovative marketing plans that can put your investment property in front of all the right buyers.

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