Purchasing an apartment building is certainly not the same as purchasing smaller investment properties. Apartment building financing is often used by investors to purchase properties with more than five units to create cash flow, gain equity, earn capital gains, and raise leverage. Although its payoff can be higher, the risk also might be higher both for you and the lender. However, while purchasing or renovating an apartment building, you need to look for apartment building loans either for a short-term or long-term period.
Apartment buildings aren’t so liquid. So, when the necessity arises, they may take a bit more time to resell. Consequently, apartment loans are often regarded as a higher risk by lenders. And due to this higher risk, qualifying for apartment building loans can be difficult. You’ll almost require a substantial down payment and significant reserves upfront. Although lending criteria might be easy to meet, commercial lenders are more concerned with the property’s value than with your personal credit history.
If you’re looking to secure apartment financing, work with the top commercial mortgage broker offering highly competitive loans for apartment buildings nationwide. Whether you are acquiring, refinancing, building, or renovating a multifamily property they will have the most competitive financing option available quickly and efficiently.
In this article, we will discuss and cover how to get a loan for an apartment building.
Types of Apartment Loans
Regardless of risk, there are several options for financing the acquisition of an apartment building. When it comes to commercial loans for a multi-family apartment complex, you’ll have a few options to choose from.
Having multiple lending options is a great benefit. It means you don’t have to accept the first offer you come across. Instead, you can take your time to choose the best offer for your conditions. Let’s learn the most common types of multifamily apartment loans and how to obtain them are shown below:
Fannie Mae Apartment Loans
Fannie Mae’s Multifamily platform includes a variety of loan programs that could help you get an affordable apartment loan. You can obtain as little as $750,000 and have a loan term of up to 30 years.
Conventional and Specialty Loans are two of Fannie Mae’s multifamily financing options. Besides, Specialty Loans can also involve more sub-categorical loans such as Green Financing, Affordable Loans, Seniors Housing, etc. You’ll usually require a 20% or bigger down payment to get that loan. These loans are often less risky for lenders because they are backed by the federal government. So, when compared to alternative financing options, interest rates are often competitive. To be determined, you should search around for the best rate and terms.
Freddie Mac Apartment Loans
When you need multifamily housing loans, Freddie Mac’s Optigo program offers multiple options to choose from. Freddie Mac may be able to assist you whether you need to borrow $1 million or $100 million to finance a real estate enterprise.
Conventional Loans, Small Balance Loans, Targeted Affordable Housing, and Seniors Housing are Freddie Mac’s multifamily Optigo lending options. If you qualify for an Optigo loan for a gain or refinance, you can expect to pay lower interest rates than you would with other apartment financing options. These loans are also backed by the federal government, minimizing the lender’s risk.
On some of the program’s fixed-rate loan options, your repayment terms might be as long as 30 years. To qualify for financing, you’ll often need a substantial down payment of 20% or more.
Bank Balance Sheet Apartment Loans
A bank balance sheet apartment loan is another form of business financing that you can use to buy an apartment complex. Banks do not package these loans and sell them to a government-sponsored enterprise like Fannie Mae or Freddie Mac once they close. Rather, the loans are kept on the bank’s balance sheet and are often put in-house.
Many traditional banks offer balance sheet loans, but they may also be offered through online lenders and life insurance firms. The loans are often complete recourse loans, which means that if something goes wrong, you could be held personally accountable for the debt.
As part of the application process, your credit score might be reviewed. As a result, having a higher credit score could assist you get a better financing package. Additionally, for a bank balance sheet apartment loan, expect to put down at least 20%. However, depending on the lender’s standards, you may be required to make a larger down payment.
FHA Apartment Loans
An FHA Multifamily loan can assist you to buy or refinance an existing apartment building with five or more units. The US Department of Housing and Urban Development insures FHA 223(f) loans (HUD). After closing, HUD lenders package and sell the loans on the secondary mortgage market, allowing borrowers to get better interest rates and terms.
FHA apartment loans have competitive interest rates, but you need to consider other fees and features as well. The financing process has an earlier reputation for being lengthy and cumbersome, with austere qualification requirements.
FHA apartment loans can have repayment lengths of up to 35 years. Because the loans are non-recourse, your risk of default is reduced. However, mortgage insurance is usually required on these loans, so keep that in mind when comparing costs.
For an FHA apartment loan, the minimum loan amount is $3 million. A lender may be ready to finance up to 83.3 percent of the purchase price for new goods. As a result, you, the borrower, may be required to make a lesser down payment.
Apartment Construction Loans
If you want to renovate an existing building or build a new one from scratch, you’ll need to consider apartment construction loan options instead of standard multifamily commercial financing.
Conventional Construction Loans, which are backed by Fannie Mae or Freddie Mac, could be able to assist you in obtaining the finance you require. Fannie Mae’s Rural Development Guaranteed Rural Rental Housing Program, for example, can help fund the building or restoration of multifamily homes that meet certain criteria. A Moderate Rehab Loan from Freddie Mac can be used to support rental property upgrades. Rates, terms, and fees differ from one program to the next. So, to discuss your borrowing options, you should contact a Fannie Mae or Freddie Mac loan partner.
The HUD-guaranteed FHA 221(d)(4) loan can assist you to finance the development of a new multifamily apartment building. However, the minimum loan size is usually $4 million, and most loans are in the $10 million range. The period of a loan can be as lengthy as 40 years. During the construction stage, you may be able to take advantage of interest-only financing.
Balance Sheet Loans can also be used to finance the development or renovation of an apartment complex. Because the loans are held in-house, lenders are exempt from Fannie Mae, Freddie Mac, and FHA rules.