How to Get Approved For an Apartment Building Loan

Apartment building loans are a type of commercial real estate financing for multifamily property. Like other residential real estate, it’s financed by banks, life insurance companies, online lenders and even mortgage brokers.


You can get a traditional multifamily bank loan, CMBS or government-backed loan. The latter is often the best choice for new construction because it offers three years of interest-only and then 40 years of non-recourse fully amortizing financing.

1. Getting Started

As an investor, it’s essential to find the right type of financing to get started. The right loan can save you money in interest and fees, making your investment more profitable overall.

When obtaining an apartment building loan, there are a few things to consider. First, you’ll want to make sure that you’re eligible. A few different types of loans exist, and each has its own criteria for eligibility. Typically, you’ll need to have a good credit score and a large down payment to qualify for an apartment building loan.

You’ll also want to understand the terms of your loan, including the amount of the loan and any prepayment penalties. For example, some loans have a prepayment penalty that is triggered when you sell the property or pay off the loan early. This penalty is meant to compensate the lender for the lost interest payments.

Another option is to use a blanket loan, which is similar to a non-conforming mortgage that is designed to finance multifamily properties. This type of loan has been gaining popularity in recent years, because it allows borrowers to qualify for more money with a shorter loan term and higher debt to value ratios than government-backed or commercial bank loans. Additionally, a blanket loan can be easier to obtain because it’s not subject to the same strict guidelines as other types of loans.

2. Getting Approved

Getting approved with an apartment building loan depends on how well-qualified you are, how long you plan to keep the property and how much money you can put down upfront. The underwriting for apartments tends to be more conservative than for detached homes or condos. A lender may request more qualitative information to make sure you are a good investment risk, such as your experience managing rental properties.

Large commercial banks can offer apartment building loans, but they aren’t as familiar with them as they are with other types of commercial real estate financing. You’re better off looking to smaller regional or community banks for apartment building loans.

Some government programs offer apartment building loans, but they tend to favor borrowers who want to live in one of the units and rent out the others or who have been investing for a long time. They also have strict qualification standards.

Bank balance sheet apartment loans are another option for apartment building investors. These typically have lower interest rates than a government-backed apartment loan, and they aren’t as restrictive as private mortgages. However, they aren’t as available as government-backed apartment loans.

FHA multifamily apartment loans are another source of apartment building financing. They’re insured by the federal government and are often easier to qualify for than traditional multifamily commercial loans. But they aren’t always the best option if the property needs extensive renovations.

3. Getting the Money

When it comes to buying an apartment building, the financing is a bit different than that of detached homes or condominiums. Properties with one to four units are classified as residential, while those with five or more dwellings fall under the category of multifamily housing and require a special type of loan called an apartment building loan.

Like any other commercial real estate loan, apartment building loans have a variety of terms and conditions. One of the most important things to consider is that these types of loans have much higher credit requirements than residential loans, meaning your credit score needs to be very strong or else it can be difficult to qualify. Additionally, multifamily loans usually have larger down payment requirements, and you need to show that your yearly net operating income will cover the yearly mortgage payments.

Government-backed apartment building loans follow guidelines from either the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Company (Freddie Mac) or the Department of Housing and Urban Development (HUD). These types of apartments are also known as conventional multifamily loans, and they can have varying terms between three and 30 years. These types of loans are often nonrecourse, but they can have prepayment penalties if you sell the property early. A good option is to find a lender that offers assumable apartment building loans, which allow a new borrower to take on your debt without the prepayment penalty.

4. Getting the Building Built

A good apartment building can generate a lot of rental income, so you’ll want to make sure it’s built in the best location possible. But that usually comes with a high price tag, so you’ll need a large enough down payment to get the construction started. It’s also important to have a detailed budget that includes all the long-term expenses, including things like maintenance, utilities, insurance and management.

Most apartment buildings have a general contractor that oversees the project and works with subcontractors to handle excavation, steelwork, carpentry and other construction tasks. Once the plans and drawings are finished, contractors will start submitting bids for the job. It’s common for the final cost of an apartment building to be higher than the original bid, so it’s important to make sure your budget includes a buffer for unexpected costs.

Another important thing to remember is that apartment buildings aren’t as liquid as a single-family home, so lenders often consider them more risky than smaller residential investment properties. This means that you may need a larger down payment and more reserves to qualify for the financing you’re looking for. There are a few different types of apartment loans, including standardized types that can be sold to Fannie Mae or Freddie Mac and customized types, known as portfolio loans, that lenders keep on their own books.