Apartment Building Financing And Multi-Family Mortgage Guidelines

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Apartment Building Financing And Multi-Family Mortgage Guidelines

This BLOG On Apartment Building Financing And Multi-Family Mortgage Guidelines Was UPDATED On October 22nd, 2018

There are a variety types of commercial loans. Commercial mortgages are in a totally different class than residential home loans. Many folks who start out as real estate investors start with investing in single family homes. Apartments Buildings are considered the safest type of commercial loans.

  • Eventually, their next move is normally apartment buildings
  • Apartment building financing is much easier to qualify for than strip malls, industrial buildings, or office buildings
  • Sometimes, apartment building financing is much easier to process and underwrite than a residential mortgage loan
  • Make sure you speak with a commercial mortgage specialist before you start shopping for an apartment building

Types Of Apartment Buildings

Any residential unit above a 4 unit is considered a commercial property.

  • A residential mortgage lender normally does not do commercial loans unless the loan officer is a dual residential and commercial loan originator
  • Commercial loans are not regulated like residential loans
  • Most commercial loan officers can originate commercial loans in 50 states since they do not have to be licensed
  • There are two types of apartment building financing: 
    • Mixed used apartment building financing
    • 100% residential apartment building financing

Mixed Use Commercial Buildings

Mixed use apartment buildings consists of residential units and office/commercial units.

  • To be considered mixed use apartment buildings, the building needs to consist of 75% or more residential units and the balance in office space or store fronts
  • This is very common in larger cities where there are stores or offices on the first level and apartments in the upper levels
  • Daily rental residential units such as hotels or motels are not considered apartment buildings

What Commercial Lenders Require

There are recourse and non-recourse commercial loans. Recourse means that the property has a personal guarantee from the borrower. Non-recourse loans is when the borrower does not have to personally guarantee the commercial loan.

When commercial real estate investors seek a commercial loan, lenders will primarily be interested in the property first and second, they will be interest in the guarantor/borrower/operator.  In many cases, the commercial mortgage lender will interview the guarantor/borrower/operator

With the property, here are the things they will be mainly concerned with:

  • Location of the apartment building
    • They will be concerned with the neighborhood and rates and terms will depend on whether the property is on a A, B, or C location
  • Condition of the apartment building:
    • The commercial lender will be concerned with the condition of the subject property and rates and terms will depend whether the condition of the property is a A, B, C class property
  • The commercial lender will want to know the following:
    • Rent roll
    • Apartment building operating income statements for the past two years
    • Property’s year to date operating statement
    • Vacancy rates for the past two years, eviction rates for the past two years
    • Photos of both interior and exterior of the property

Guarantor Of Commercial Loans

As for the guarantor/borrower/operator of the apartment building loans, the commercial will look at the following:

  • Three years tax returns
    • Business and personal
  • Credit scores and credit report
  • Experience in property management and resume as well as business plan

Apartment Building Mortgage Terms

Most apartment building financing programs require a minimum of 20% down payment, 25% down payment, or 30% down payment depending on the credit profile of the mortgage loan borrower and the subject property.

  • Apartment building mortgage loans are normally balloon loans of 3, years, 5 years, 7 year, or 10 years amortized over 20 years, 25 years, 30 years
  • Pre-payment penalty clauses do exist on apartment building financing and some can be extremely high such as Fannie Mae 10 year apartment building financing mortgage loans
  • Many apartment building loans can be assumed by the buyer of the apartment building

To learn more about Apartment Loans, please contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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