Getting an Apartment Building Loan

Unlike financing detached houses, duplexes or triplexes, an apartment building loan requires a bit more experience and stricter qualifications. It also involves different underwriting, as the property is considered a commercial venture.


Lenders will look more at the property’s profit potential than at a borrower’s personal finances. Most buyers use a corporation or LLC as the purchasing entity, to limit liability.

Interest Rates

Depending on the specific loan type, apartment construction loans can provide significant leverage for developers looking to take on large-scale multifamily development projects. These financing options are typically structured as interest-only during the construction phase, allowing borrowers to finance a project without having to commit capital upfront. Once the building is complete, the loan structure generally converts into a conventional mortgage or second-position debt with principal and interest payments.

Unlike other types of real estate financing, where the financial health and credit score of a borrower will make or break a deal, apartment lenders are more focused on assessing the potential income-generating capabilities of an investment property. To do this, they look at the property’s net operating income (NOI), which is calculated by subtracting expenses from gross rental revenues.

The NOI determines how much the borrower can afford to pay each month, and the loan-to-value ratio (LTV) determines how much a lender will lend on the investment. There are a number of different types of agency and HUD multifamily loans that offer attractive loan terms, including fixed interest rates, long-term amortization periods, and non-recourse financing.

There are also private money apartment lending options available, although these can be more difficult to obtain and usually have more stringent requirements. Typically, these lenders will require extensive documentation including lease agreements, property management agreements, tax bills, insurance policy declaration pages, and more.

Down Payment

Getting an apartment building loan requires a larger down payment than a detached home. Co-op boards generally expect at least 20% down from buyers, and in higher-end buildings, this can be as high as 30% or more of the purchase price. The board wants to ensure that members can cover the mortgage and other expenses long-term, especially in the event of a job loss or another financial hardship.

Lenders often assess a potential borrower’s credit and financial strength, property analysis, location and other criteria to determine whether they are a good fit for the program. They may also use projected net operating income calculations and other data to make sure the project is financially viable. Often, this process can take several weeks.

Some lenders also offer short-term apartment loans, known as bridge loans or hard money loans, for fix-and-flip investors who want to renovate and sell quickly. These loans can have a term of six months to three years, and they usually come with higher interest rates than permanent financing, but they don’t have the same prepayment penalties as other loans. Short-term financing is offered through a variety of sources, including private lenders and banks that don’t sell their loans to government-sponsored enterprises like Fannie Mae or Freddie Mac. CoreVest is one example of a lender that offers this type of financing.

Private Lenders

Getting a loan to purchase an apartment building is more difficult than getting a mortgage for a single-family home. Private lenders have the ability to offer a variety of apartment financing options, and can help you find the right one for your investment goals. If you don’t have a great deal of money or net worth, you can also consider asset-based apartment loan programs. These lenders can fund a range of investment properties, from existing apartment buildings to new construction.

Investors who want to build an apartment complex can use an agency apartment loan from Fannie Mae or Freddie Mac, which have the lowest long-term fixed rates. These loans are backed by the federal government, so the borrower must meet certain credit, liquidity, and experience requirements. They are also more suited to larger cities and investors who are looking for higher loan to value and debt to income maximums.

Many investors who own multifamily investments write off expenses against their personal income, which can make it hard for them to qualify for a traditional mortgage loan. These investors can find alternative multifamily apartment loan financing from companies like CoreVest, which offers bank balance sheet apartment loans that don’t conform to government guidelines. These loans are easier to qualify for and can be funded more quickly than agency apartment loans.

Government Programs

Depending on the type of apartment building you are planning to buy, there are several government programs that can help with your purchase. These government-backed loans tend to be less strict than private or CMBS apartment loan types, but they can still take longer to get funded. They also come with restrictions like local ownership and whether or not the property is considered residential or commercial.

There are also other types of multifamily construction financing that are not backed by the government. These include CMBS apartment loans, which are asset-based loans that are securitized on Wall Street, and bank balance sheet apartment loans. Generally, these are more flexible and faster than government-backed apartment building loans, but they do carry higher interest rates and fees.

Another type of multifamily construction financing is a second-position mezzanine loan. These loans are typically placed on top of a primary multifamily construction loan to increase your combined loan to value (CLTC) and allow you to take on larger projects. They are non-recourse and often have interest-only payments.

These are great options for developers of new apartments. They are easy to qualify for and can be used to compete with all-cash offers, but they do have some drawbacks, such as high interest rates and short terms. They can also be harder to manage, as tenants in these types of properties are more likely to make noise after 10 PM and leave junk on their patios.