Apartment Building Loans For Real Estate Investors

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Apartment Building Loans For Real Estate Investors

This BLOG On Apartment Building Loans For Real Estate Investors Was UPDATED On October 22nd, 2018

I specialize in Apartment Building Loans.

  • Apartment Building Loans fall in the commercial loans categoryThey are very popular in today’s market
  • Most lenders want the borrower to put a 20% down payment
  • Others require 25% down payment
  • The lower the loan to value the better the mortgage rates 
  • There are several different types of apartment building mortgage loans  
  • The first type of apartment building loans is a portfolio apartment building mortgage lender where it is geared towards small balance apartment investors
  • Another common apartment building loan program is a FANNIE MAE Multi-Family Loans
  • Minimum loan sizes are normally $1 million on Fannie Mae Multi-Family Loans
  • There are also short term hard money rehab apartment building loans for vacant non-income producing apartment buildings
  • Large down payment and higher interest rates apply on short term hard money bridge loans
  • All of these apartment mortgage programs has its advantages and disadvantages

Requirements For Apartment Building Loans

Apartment building mortgage loans lenders are more concerned with the subject apartment building than the credit of the borrower.

  • The financial and experience profile of investors is very important
  • This because lenders wants to know that the owner is capable in managing and operating the apartment building
  • They want to make sure that the apartment building has a history of generating income
  • Lenders want to know there are no obstacles in renting units

The following are what is required for apartment building mortgage loans:

  1. Operating statements from the past three years and year to date operating statements
  2. Current rent roll and historical rent rolls for the past 12 months
  3. Pictures of the property
  4. Both interior and exterior photos
  5. Borrower’s net worth and credit profile
  6. Borrower’s liquidity
  7. Borrower’s recurring cash flow
  8. Rent Roll
  9. 3 years of borrower’s personal and business tax returns
  10. Personal financial statement of the borrower

Prepayment Penalty On Apartment Building Loans

With apartment building loans, there are prepayment penalties with the exception of short term hard money rehab loans and private money bridge loans.

  • The most common type of prepayment penalties with apartment building lenders are the 5, 4, 3, 2, 1
  • What this means is that if the mortgage is paid off off the first year, the lender will charge a 5% prepayment penalty
  • If investors pay off the balance the second year, the prepayment will be 4% of the mortgage balance
  • 3% prepayment penalty on year 3
  • 2% prepayment penalty on year 4
  • 1% prepayment penalty on year 5
  • With FANNIE MAE apartment building mortgage loans, lenders will charge the yield maintenance premium
  • Yield Maintenance Premium is the whole amount of interest that borrowers would have paid until apartment building mortgage matures
  • For example, here is a case scenario:
    • if a borrower had a 5 year balloon apartment building mortgage loan
    • if borrower were going to sell the apartment building after 6 months of getting the mortgage loan
    • they would be liable for 4 years and six months worth of interest payments
  • However, these loans are assumable and another buyer can assume current FANNIE MAE loan as long as they qualify.

Related> Apartment Building Financing

Related> Commercial Loans

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