Apartment Building Loan Factors

There are many variables to consider when financing an apartment building. There are interest rates, debt service coverage (DSCR) requirements, amortization and more.


Most commercial loans are taken in an LLC, which provides liability protection to the individual owners. This can be a big benefit for investors who want to avoid personal liability.


Apartment building loan rates vary by lender and type of financing. They also depend on the type of apartment property and its location. For example, apartments located in rural areas tend to have higher interest rates than those located in urban areas. Some lenders also require a minimum occupancy requirement, while others may have prepayment penalties.

Lenders offer both standardized mortgages that they sell to Fannie Mae and Freddie Mac and customized types known as portfolio loans that they keep on their own balance sheets. The difference between the two is that standardized loans have less flexibility in the underwriting process.

If you’re buying a multifamily apartment, consider a government-backed loan program. These include Fannie Mae, Freddie Mac and FHA multifamily. They typically have low apartment loan rates and are nonrecourse to the borrower. However, these types of loans can take longer to close because they’re subject to strict underwriting guidelines.

Other multifamily loan options include CMBS, mezzanine loans and private money loans. These can be used to acquire apartment buildings, renovate them or for cash out refinances. Private money apartment loans are available from accredited and institutional investors who pool their funds for a single project. These types of loans are often easier to obtain than conventional apartment financing. They can also have lower interest rates than conventional bank loans.


If you’re looking to purchase an apartment building, your lender will be a big factor in how easy or difficult it is for you to get financing. Lenders will review your personal credit score, but they’ll also focus on the property’s ability to produce income. Nav’s free credit report can help you understand your personal and business credit in one place, so you can make informed decisions about your financing.

Loans for properties with five or more apartments start to fall into the “commercial” financing category, which means that some of the attractive mortgage options you might be used to when purchasing a duplex, triplex or fourplex aren’t available. Instead, you’ll need to work with a bank or commercial mortgage lender that specializes in apartment buildings.

Some lenders offer agency apartment building loans, which are typically backed by Fannie Mae or Freddie Mac. This can be a good option for small investors who don’t have the capital to buy a larger apartment complex on their own. However, these types of loans often have higher interest rates than if you worked with a private mortgage lender.

Other lenders provide bank balance sheet apartment loans. These types of loans aren’t packaged up and sold to a GSE, but rather stay in the bank’s balance sheet until they’re paid off. These loans are usually full recourse, meaning that the borrower is personally liable for the debt in case of default.

Down Payment

Many apartment buildings have minimum down payment requirements that are typically 20 percent. This makes it difficult for buyers with less cash to purchase the property. Condo buildings are not as inflexible, but they often require that a buyer puts at least 10 to 15 percent down. This is because putting a low down payment on an apartment in New York City makes the property look risky to lenders, sellers, and other potential investors. In addition, a buyer who only puts up less than 20 percent will likely need to buy Private Mortgage Insurance (PMI), which adds to the cost of the loan.

Another option for borrowers is to consider a short-term apartment building loan. These loans usually have a maximum term of three years and are intended to be used for renovations and then sold for profit. They require a high credit score, but can be an attractive financing option for fix and flip investors who are competing against all-cash buyers.

Another popular option is a CMBS or commercial mortgage backed securities loan. These are asset-based loans that are backed by a pool of other commercial real estate investments and sold on the secondary market. They can have a lower minimum investment than government-backed apartments loans, but their rates are often higher. Also, CMBS loans often have more restrictive borrower requirements than government-backed apartment loans.


There are many options for financing multifamily apartment projects. They include bank loans, life insurance company loans and agency (Fannie Mae/Freddie Mac) loans. Each has its own characteristics, requirements and interest rates. Generally, the higher the quality of the project and the experience of the sponsor, the lower the rates.

The multifamily loan program offered by FHA is an excellent option for new construction or significant apartment rehab projects. It is a fixed-rate, non-recourse commercial real estate loan that provides up to 90% combined LTC. It also offers a three-year interest-only construction phase followed by a 40-year full-amortization term. It is available to lenders who meet HUD requirements and are approved to participate in the program.

A CMBS (commercial mortgage-backed securities) loan is another option for financing multifamily projects. It’s a non-recourse, asset-based commercial mortgage that is packaged and sold on the secondary market after closing. This type of loan is often used by larger investors.

Private money multifamily loan sources may offer competitive rates, but they typically provide less leverage than government-sponsored or life insurance company loans. They may require a personal guarantee from the borrower or a cosigner with sufficient financial strength to assume responsibility in the event of default. Private lenders also have stricter credit requirements and more restrictive lending guidelines. They may also ask for a higher minimum down payment.