Types of Apartment Building Loans

Whether you are looking to buy an apartment building or refinance a current one, there are many options for multifamily housing financing. These loan programs vary by credit score requirements, property type and amount borrowed.


Lenders tend to care less about the borrower’s personal finances and more about the profitability of the property. This might require a higher down payment or reserves.

Freddie Mac

As the government-sponsored enterprise that buys mortgages and sells them on Wall Street, Freddie Mac is an important player in the mortgage industry. During 2021, Freddie Mac helped finance nearly 1.4 million single-family home purchases and refinances. The company also plays an important role in financing affordable multifamily housing.

Freddie Mac’s Small Balance Multifamily Loan program has many benefits that make it a great choice for apartment buyers and owners. For instance, the application process is simple and streamlined, and tax returns are not required. Furthermore, the program offers flexible prepayment penalties, from yield maintenance to soft stepdowns. Lastly, the program has lower costs than other government and agency programs.

The Freddie Mac Bridge to Resyndication Loan is an excellent choice for investors looking to take advantage of 4% Low Income Housing Tax Credits (LIHTCs). This loan program offers efficient and cost-effective financing for the acquisition or refinance of LIHTC properties. In addition to offering LTV allowances of up to 85% and DSCRs as low as 1.15x, this loan also allows for interest-only terms.

The Freddie Mac Value Add Multifamily Loan is an excellent choice for multifamily borrowers who need a short-term, affordable financing solution for light renovations. This non-recourse loan program is perfect for investors and developers who want to do a “fix and flip” or purchase a property that needs modest rehab. This loan can be combined with a 10-year Freddie Mac Targeted Affordable Housing Mezzanine Loan for more funding flexibility, allowing leverage up to 85% and DSCRs of as low as 1.05x.

Fannie Mae

Fannie Mae is one of the largest players in the multifamily industry, and they offer some great programs for those looking to invest in multifamily properties. These include the Small Loan Program, which was designed to address the specific needs of smaller apartment buildings. In contrast to large apartment building loans, this program has a streamlined process and allows lenders more flexibility. For example, they can waive a property’s replacement reserve requirements, which would not be possible for larger multifamily loans.

Moreover, this program is non-recourse. That means that the lender can only pursue a claim against the borrower in select circumstances, like fraud or gross negligence. However, it is important to note that this program is subject to the same legal due diligence as other multifamily mortgages.

For instance, it is common for the lender to conduct a thorough inspection of the property to make sure that it meets local laws and regulations. They also check to ensure that the property is free of any outstanding lawsuits or environmental issues. Additionally, they will perform a credit analysis and ensure that the borrower has strong financials. This includes having a net worth greater than the loan amount and having liquidity equal to 9 months of debt service.

In addition to the aforementioned benefits, Fannie Mae’s multifamily loans are also attractive because they are non-recourse and offer competitive interest rates. In addition, they are available for a variety of property types, including green and affordable housing properties, senior residences, student housing, and manufactured housing communities.

Government Programs

The most common types of commercial real estate financing include traditional business loans, hard money and government programs. Hard money loan providers usually require a substantial down payment and significant reserves, while government programs are less strict in their lending standards. Regardless of the type of financing you choose, make sure to read the fine print. Pay special attention to the origination fees, repayment terms and prepayment penalties.

The Federal National Mortgage Association, known as Fannie Mae, offers some of the best multifamily loan rates in America. These loans are backed by the American government and can be used for apartment construction, apartment purchases or heavy rehabilitation. They are also non-recourse and assumable.

Fannie Mae is a government-sponsored enterprise that sells its mortgage pools on Wall Street as securities. Lenders close these loans with their own funds, but Fannie Mae guarantees them and then buys them back to lend again. The loans have competitive 5- and 10-year fixed-rates and can be arranged as blanket loans to cover multiple properties.

Like other residential property types, apartment buildings require constant maintenance and upkeep. This includes replacing items like lightbulbs, appliances and windows. It’s important to invest in communities with stable economies and healthy population growth, which can boost rental demand. This will increase your chances of a fast sale if you ever decide to sell your investment property.

Blanket Loans

For experienced investors with a large property portfolio, blanket loans are a great way to simplify loan management. These mortgages consolidate investment properties into a single mortgage with one monthly payment, interest rate and set of terms. This streamlined approach saves time and money. Blanket loans are ideal for house flippers, residential landlords and real estate developers.

Unlike individual mortgages, which require detailed financial information such as asset verification and proof of income, blanket loans use a net operating income model that subtracts vacancy and other expenses from gross rental income. The borrower’s credit score and cash reserves are also taken into consideration. A lender will want to see at least six months of cash reserves to qualify for a blanket mortgage.

In addition to saving money, a blanket mortgage can also reduce the risk of overexposure to a single investment property. It also allows a borrower to sell a property without having to pay back the entire loan balance. Typically, this is accomplished by using something called a release clause.

While these advantages make blanket mortgages an attractive option for many investors, it is important to find the right lender. Most mainstream banks don’t offer them, so it’s best to work with a lender that specializes in commercial financing. Also, be sure to shop around to compare mortgage rates and other fees.