Toronto multi unit residential property financing for less than five living units falls under residential mortgage financing programs. For apartment buildings with more than five units, commercial mortgage financing would come into play.
In most cases, the primary goals of the borrower is secure the maximum amount of financing available for the property at the lowest potential cost of financing. The challenge with these goals is that they are inter connected in that the lowest potential interest rates available will require a maximum loan to value or lending value as a percentage of the fair market value of the property of 65%.
Higher loan to value ratios are possible for apartment building financing, but this would require insured mortgages through Canada Mortgage and Housing Insurance (CMHC) or another recognized residential home mortgage insurer. An insured loan will come with an insurance premium added to the cost of financing. You can get up to 90% of the property value financed for apartment buildings under 5 units, but the cost of financing can be almost double compared to uninsured mortgage rates.
With multi unit properties that are above 5 units, most commercial mortgage providers financing these types of properties will require mortgage insurance. As a result, getting uninsured rates for a 5+ unit apartment building mortgage can be difficult or even unavailable, depending on your particular situation or location.
The next lending factor assessed by a multi unit lender after real estate security, is the debt servicing that will be generated from by the property. Typically, a bank or institutional lender will require the net cash flow for the building to be at least 1.2 times the annual principal and interest payments for the proposed mortgage.
In order to determine the actual net cash flow, or adjusted net cash flow used for lending purposes, mortgage lenders will closely assess the property’s historical financial statements to make sure there are sufficient operating costs present in the numbers before a debt service ratio is calculated. In some cases, the values showing in the financial statement are adjusted upward to better reflect what the lender believes will be the true ongoing operating costs of the property. The resulting adjusted net cash flow can cause the debt service ratio to go below the 1.2 minimum amount and cause the application to be declined.
The mortgage lender and/or the mortgage insurer, if an insured mortgage is required, can also require property upgrades to be completed before an approved mortgage can be disbursed. The cost associated with any required capital improvements will likely have to come from another source of financing.
Private lenders also provide multi unit residential financing, but at higher rates, lower loan to value ratios that insured mortgages, and short repayment or renew periods.
Even though there can be large numbers of apartment buildings in more highly populated areas, commercial mortgage financing for the larger apartment complexes can be hard to arrange depending on the profile and location of the property.
Regardless of what type or size of multi unit property mortgage you require, the best way to improve your chances of getting a mortgage facility for the rates and terms you’re looking for in the time you have to work with is through utilizing the services of an experienced broker.
If you’re require a mortgage for an apartment building you are trying to purchase, presently own, or planning to invest in sometime in the near future, We suggest that you give us a call so a member of our team can go over your situation with you and discuss multi unit property financing options that are potentially available to you.