How Do You Qualify For Apartment Building Commercial Loans

How Do You Qualify For Apartment Building Commercial Loans

This BLOG On How Do You Qualify For Apartment Building Commercial Loans Was UPDATED On December 15th, 2017

For those who are seeking apartment building commercial loans, there is a two tier approval process.

  • First, the apartment building needs to be underwritten
  • Apartment building commercial loans are commercial loans
  • Terms on apartment building commercial loans are normally the following:
    • 3 year
    • 5 year
    • 7 year
  • Apartment Building loan programs are balloon loans which are normally amortized over 20 years, 25 years, or 30 years
  • There are Fannie Mae apartment building commercial loans available that are 10 year loan programs amortized over 30 years
  • However, minimum loan sizes are normally over $1 million and there are huge prepayment penalties
  • Fortunately, these Fannie Mae loan programs have assumable mortgage clauses in them so if you need to sell the apartment building or apartment complex, the new buyer can assume the existing apartment building mortgage loans

Property Location And Condition Are Important In Apartment Building Commercial Loans

Terms and mortgage rates of apartment building commercial loans are based on property location and the condition of the apartment building and apartment building or complex location.

  • If the apartment building is in an excellent area and the condition is above average, it is considered Tier I
  • If the apartment building is in fair condition and is in a descent area, it is considered Tier II
  • If the apartment building is in a rougher side of town and the condition is habitable but in need of modernization, then the the property is considered Tier III
  • Real Estate Investors will get the best mortgage rates and best mortgage terms with Tier I apartment buildings and up to 80% Loan to Value mortgage loan
  • Lower Tiered apartment buildings will probably require a 60%, 65%, 70%, or 75% Loan to Value and higher mortgage rates
  • The apartment building needs to cash flow and have a good occupancy rate
  • The building needs to be able to pay for itself and be profitable and the eviction rate needs to be at a minimum

Apartment Building Mortgage Loan Borrower Requirements

The apartment building mortgage loan lender will also require the owner of the apartment building or complex to be the guarantor of the loan and will require that the guarantor have experience in running an apartment building or apartment complex.

  • Smaller apartment buildings such as a six unit apartment building will require minimal experience from the guarantor and/or owner
  • However, larger apartment buildings such as 50 plus unit apartment buildings, a guarantor and/or apartment building owner should have several years of experience in running an apartment building and be familiar with the laws of evicting non payers and tenant rights
  • The borrower should have descent credit scores and assets and solid cash flow whether is via his apartment buildings or other investment interests

Letter Of Interest By Commercial Lenders

Commercial Lenders will issue letter of interest to investors once they review the commercial loan application.

There are two types of commercial loan program:

  1. Recourse
  2. Non-Recourse

Recourse is when the principal and/or principals/partners personally guarantee the commercial loan. Non-Recourse is when there is no personal guarantee and the property is the collateral.

Below are the the basic initial items needed by an apartment mortgage lender in order for them to issue a Letter of Interest:

  1. Current rent roll of the apartment building or apartment complex
  2. Operating statements from the past three years and three years business tax returns and three years personal tax returns.  Schedule E can be provided initially
  3. Pictures of the property that includes interior, exterior, and surrounding areas
  4. Personal Financial Statement (net worth, liquidity, income) of borrower/guarantor
  5. Purchase contract (if a purchase)
  6. Resume of the owner/operator/guarantor

Apartment Building Commercial Loans are considered the safest commercial type financing out of all commercial loans by lenders. Gustan Cho Associates can help real estate investors with various types of commercial financing.

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