Let’s go over the timeline of a 2-4 unit multifamily purchase on the financing side. Specifically new construction financing. Once you’ve knocked out your pre-approval and closed on the construction loan, what next?
During that 12-month build period, there’s not a lot that goes on either on your side or the lenders. The builders will be busy completing your property, and you will be getting a draw request every month which you’ll need to review/sign.
This document allows the builder to take a draw in order to continue the project. On that piece of paper, you will see the items that they are planning to utilize that next round of funds for, and this is taken out of your construction loan.
You’ll also get a statement every month showing how much interest has accrued on your property and how much of that interest is going to come out of your interest reserve (interest savings account).
Once you’re about 10 months into the construction process, your property will be almost completed. Your lender will reach out to you six weeks after your property is finished. He’ll give you an update on the project and provide a sheet that reviews all of the financing details (since it’s been a long time since the original discussions). It’ll go over what’s important to know as you get ready for your refinance.
The lender will then reach out to you with some loan scenarios/options for your long-term loan. Most investors choose a 30-year fixed mortgage. That’s the beauty of a fourplex… you can go up to a 30-year amortization with Fannie Mae, Freddie Mac financing and get the best available rates (compared to commercial loans).
After selecting which rate term option you’ll be going with, you’ll then go through the refinance paperwork. This includes the initial loan disclosures and a list of updated financials that underwriting will need.
The refinance process takes about 30-45 days. It’s important to note that the lender cannot complete the refinance until the property is completed, your property is given a Certificate of occupancy by the city, and the builder has fully drawn your construction loan (construction lender sends payoff info to the lender so they can be paid off through the refinance).
Mortgage documentations expires very quickly which is why the lender waits until the ending phases of construction to begin that 4-6 week refinance process. They’ll keep an eye on all of those things and what still needs to happen in order to have a smooth transition into your long-term loan. You don’t want to provide the updated bank statements, pay stubs, mortgage statements, etc. too early because you’ll likely need to provide it all again if it expires.
As far as the timeline goes for an under-construction FIG fourplex, that’s a general idea of what you can expect during the process. You can watch videos about different aspects of the finance side by visiting our multifamily financing page.