Apartment Loan Terms and Requirements

Apartment loans differ from other types of commercial real estate financing in that the lender requires a bit more experience in owning and operating multifamily properties. The specific requirements depend on several underwriting factors including DSCR, occupancy and location.


Like other commercial loan products, apartment loans come in standardized types that lenders can sell to Fannie Mae or Freddie Mac and customized types known as portfolio loans that lenders keep on their own books.

Interest Rates

In many cases, the interest rates associated with multifamily loans are tied to a variety of important economic indexes. This helps to ensure that loan terms are updated frequently and reflect the changing economic conditions. These types of loan programs often have low DSCR requirements and allow for high leverage – which is the amount of gross rents minus operating expenses that are used to pay your apartment mortgage payment.

A HUD (Department of Housing and Urban Development) or FHA apartment construction loan can be an excellent option for investors looking to build market-rate apartment buildings. These are government-backed and offer favorable terms, such as 35 to 40 years of fixed rate amortization. They also come with favorable LTV and are non-recourse up to 80% of the loan value, meaning that the lender can’t pursue your personal assets in the event of default.

Another type of multifamily loan with favorable rates is the life company loan. These are insured by insurance companies and offer some of the lowest apartment loan rates in the industry. The only drawback is that they’re typically limited to A class property in larger MSAs and require financially strong, experienced borrowers with at least two previous commercial real estate projects under their belt.

Finally, you can also obtain a hard money apartment loan with favorable interest rates from private lenders. These loans are usually based on credit score and may require tax returns or other documentation. However, they’re much easier to get than traditional bank financing and offer a lower minimum down payment.

Down Payment

The amount of money you need to put down on an apartment building will depend on how well-qualified you are and how long you plan on owning the property. In general, you need at least 20% down for a government-backed apartment loan (Fannie Mae, Freddie Mac, and FHA). With the exception of Fannie Mae Multifamily Small Loans and Freddie Mac Small Balance Loans, which have lower minimum loan amounts and higher interest rates, these loans are nonrecourse to the borrower and offer 30-year amortization periods.

Banks, agencies, HUD and conduit lenders are not the only sources of apartment loans, but they’re generally the starting point for most new investors. More advanced options for experienced multifamily borrowers include life companies, which offer long fixed-rate terms at low rates but typically want highly qualified investors, and hard money loans, which are expensive but can be the only form of apartment financing available to borrowers with credit or legal issues.

In order to qualify for a commercial mortgage, you’ll need to meet a number of criteria, including income documentation, credit history, and cash reserves. If you’re concerned about meeting these requirements, consider a bridge loan, which can be used to buy the property and then paid off once you have sufficient funds. Most bridge loans are unsecured but can be more flexible than traditional mortgages.

Closing Costs

Closing costs can add up for buyers and sellers. These are fees and taxes associated with a loan’s completion. They can be relatively high in NYC, especially if the deal involves a co-op or new construction. Fortunately, many of these are negotiable. For example, Hauseit’s Buyer Closing Credit is a legal and non-taxable way to save on closing costs when buying a new construction apartment in NYC in a soft market.

Government-backed loans like Fannie Mae, Freddie Mac, and HUD offer competitive terms with favorable rates for investors looking to buy or refinance apartment buildings. But these loans come with requirements such as a minimum down payment requirement and income limitations for borrowers. Investors can also consider CMBS loans, which have lower down payments and a little more flexibility for borrowers.

Portfolio lenders are another popular choice for multifamily investors. These are lenders that hold the mortgages themselves rather than selling them on the secondary markets. As a result, these lenders can be more flexible on underwriting and allow for larger loan amounts than conventional bank or CMBS lenders.

Bridge loans are a great way for new property owners to get started with investing in apartments until they can close on a permanent loan. These short-term loans are usually interest-only and require extensive documentation, such as current lease agreements, property management contracts, and tax bills.


There are many options for financing a multifamily property. The most common is a bank. However, banks don’t always offer the best terms for an investment property. The average bank will offer a 70-75% LTV, full recourse loan for apartments, but this may not be the best option for someone looking to invest in multifamily.

Another type of financing is agency apartment loans. These are loans that are backed by government organizations, such as Fannie Mae or Freddie Mac. These types of loans can offer more flexible terms for certain property types. For example, they can provide higher LTV ratios in affordable developments. They can also provide lower interest rates and shorter loan terms.

The terms for these types of loans can vary, but they generally require extensive documentation and rigorous underwriting. Applicants for these loans will need to submit rent rolls, property management agreements, tax bills and insurance policy declaration pages.

Another advantage of agency apartment loans is that they are non-recourse. This means that the lender can only repossess the financed property if you fail to make your payments. This can give investors more confidence in taking on riskier projects. This type of financing does tend to come with higher prices, though, due to the additional risks involved for lenders. For investors who want a more flexible financing option, there are also private equity groups that can provide multifamily loans. These companies often look at a broader range of criteria than CMBS and hard money lenders, and can provide more competitive pricing.