Apartment Loan Terms and Requirements

When financing a multifamily property, you have many options. These include agency (Fannie Mae/Freddie Mac), HUD, and CMBS loan programs. These offer favorable interest rates and have lenient borrower requirements.


But, there are also other options, including mezzanine loans, that can help you get higher leverage on your investment. Let’s look at some of the important apartment loan terms to keep in mind.

Types of Loans

When you invest in an apartment building, it’s important to understand the various types of loans available. These can be used for the acquisition, construction, or refinance of an investment property. Each type of loan has different requirements, fees, and interest rates. It’s also important to consider the amount of time you have to repay the loan.

Agency apartment loans are the most common form of multifamily financing. These are backed by the government and offer competitive rates. However, they can take longer to close than other types of loans.

Bank balance sheet loans are another option for investing in apartment complexes. These are held by the bank that issues them and don’t get sold to a GSE like Fannie Mae or Freddie Mac after closing. This allows the lender to offer higher debt to value and loan size maximums than other commercial loans. However, it can also mean higher fees and interest rates.

Private money apartment loans are typically used for renovation and value-add projects on existing properties. These are typically full recourse loans that are based on your creditworthiness rather than the assets of the property. They often have lower credit requirements and faster funding than other loans. They are often best for fix-and-flip investors who need to compete with all-cash offers on a property.

Interest Rates

With today’s low-cost debt, it’s a good time to lock in long term apartment loan financing. Investors who do so can create significant cash flow over the life of the loan and also pay down a substantial amount of principal over time. In many cases, these payments are tax-deductible.

There are a number of options for apartment loans from banks, agencies, HUD, conduit lenders, and even some private lending institutions. Some of these offer non-recourse debt, meaning that only the financed property is at risk if the borrower defaults on the loan. Other options, such as CMBS and hard money loans, tend to scrutinize a borrowers credit more closely and require higher leverage than traditional bank loans.

Conventional multifamily loan rates usually work off an index plus a spread. For example, Fannie Mae multifamily loans are tied to the 10-year Treasury rate plus 200 basis points.

There are some specialty loans available for the purchase of distressed and value-add apartment properties. These are often offered by life companies and may have lower interest rates than conventional apartment loans, but these are only for experienced investors who have the ability to make a large down payment and demonstrate strong DSCRs (annual net operating income must cover a 1.2x multiple of the mortgage payments). For even more leverage, these can be used in conjunction with a CMBS or bank loan.


The fees associated with apartment financing vary depending on the type of loan. Generally, bank loans carry the highest interest rates and require the most upfront costs, while HUD or FHA loans are often non-recourse and have lower minimum credit requirements. Commercial Mortgage Backed Securities (CMBS) loans, or conduit loans, are another source of multifamily financing and can offer a better deal than other options. They are non-recourse and typically allow for up to 80 percent leverage.

A typical CMBS loan is structured as a senior loan and a subordinate, which can provide an investor with more flexibility. However, this structure can be challenging for developers looking to secure capital for construction and value-add renovations. Moreover, the current economic conditions are likely to lead to a pullback from regional banks that provide liquidity to the sector, which could make it more difficult for multifamily investors to secure traditional financing.

In addition to interest rates, there are other expenses associated with apartment loans, including a non-refundable application fee and a closing cost estimate. Additionally, some types of apartment loans may also have required reserves, which can limit an investor’s flexibility. However, there are a number of ways that you can reduce the costs associated with apartment financing. For example, you can consider a mezzanine loan or private equity to help offset the upfront costs and lower your overall borrowing costs.


The requirements for an apartment building loan vary, depending on the type of loan and the borrower’s situation. However, all types of apartment loans require some level of financial stability, with some requiring substantial reserves and other loan collateral. In general, most lenders want to see a strong credit profile and good FICO scores that indicate the borrower will be able to make the required loan payments on time for the duration of the mortgage term.

The loan application process for an apartment building differs from that of a single-family home, with more paperwork, more third party reports and often more qualitative data regarding the borrowers’ experience as multifamily landlords. In addition, many investors purchase apartment buildings in a limited liability corporation, or LLC, to limit their personal liability.

In some cases, a lender will offer non-recourse financing for an apartment building, which means that the financed property is the only asset that can cover the loan if it goes into default. This type of financing typically comes with higher interest rates, as it exposes the lender to greater risk. Borrowers looking for an apartment loan may also want to explore peer-to-peer lending options, which allow them to present their case and request apartment loan funds from a group of potential investors. This method of financing is increasingly popular among apartment investors, especially those seeking to finance affordable housing projects or other high-impact properties.