Apartment building loans are similar to residential real estate financing, and they come in standardized types that lenders can sell to Fannie Mae or Freddie Mac and customized ones, called portfolio loans, that lenders keep on their own balance sheets. They can be 신용카드현금화 long term or short term and are either recourse or nonrecourse.
Government-Backed Loans
Whether you’re looking to buy an apartment building for investment purposes or are interested in moving into one as a primary residence, it is crucial to understand the financing options available. Unlike single-family homes, which are financed through private mortgage lenders, apartment buildings are typically financed by larger banks and nonbank financial institutions.
The three main types of apartment loans include government-backed, bank balance sheet, and CMBS loan programs. Each has its own set of eligibility requirements and costs.
Government-backed loans are usually the most regulated and take the longest to fund. They offer borrowers more stability and low to no down payment requirements.
Freddie Mac Small Loan Program offers a range of loan sizes, amortization periods, and debt service coverage ratio (DSCR) requirements depending on market. It also offers fixed-rate, floating-rate, interest-only, and hybrid ARM options.
Bank Balance Sheet Loans
Apartment complex financing options include both short-term and permanent loans. Both can help an investor purchase, renovate, and manage an investment property. The type of financing you choose depends on how well qualified you are and how long you plan to keep the property.
Government-backed apartment mortgages are the most regulated and take the longest to fund. However, they also protect you from excessive rates and fees. Bank balance sheet apartment mortgages, on the other hand, aren’t backed by the federal government. This allows lenders to offer higher debt to income and loan size maximums. These are often full recourse loans, which means that the lender can seize your personal assets if you fail to meet repayment obligations.
Freddie Mac offers several apartment building financing options through its Optigo program. These typically have fixed-rate terms, and you may be required to make a sizable down payment to qualify. You will also need to provide your lender with recent bank statements that show that the funds you’re using for your down payment are sourced and seasoned.
Conduit Loans
Conduit loans are another option to consider when financing an apartment building or complex. They are also known as CMBS Loans (commercial mortgage backed securities). CMBS lenders bundle loans into larger groups that are then sold on the secondary market. These large groups are grouped into what are called tranches based on their level of risk.
Apartments are one of the most popular property types that CMBS lenders finance. These lenders typically require less in net worth and credit requirements than agencies like Fannie Mae and Freddie Mac or banks. They are also more lenient on the DSCR requirement (debt service coverage ratio).
The majority of CMBS conduit loans are non-recourse. This means that the collateralized property is the primary source of repayment in the event of default or foreclosure. However, CMBS loans do have prepayment penalties in place. Those penalties are designed to help the lender recover interest charges that they would have otherwise lost.
CMBS Loans
CMBS loans are a great option for investors looking to purchase an affordable housing development. These types of properties are usually required to abide by Land Use Restrictive Agreements (LURA) that mandate at least 40% of the property’s units be occupied by people who earn below 60% of the area median income.
Unlike traditional commercial mortgages, CMBS loan underwriting is generally more asset-based and less focused on borrower financial history. This is ideal for borrowers who may not have the best credit or financial history.
Additionally, CMBS loans are typically assumable for a small fee, which makes it easy to sell your property at any time to another investor. However, in the event of a default, your CMBS loan will be sent to a special servicer who can determine whether or not the loan can be reasonably modified before they initiate foreclosure proceedings on behalf of the investors.
Lastly, CMBS loans are usually structured as floating rate and come with five or seven year term lengths, with the option to refinance for an additional five or seven years. This flexibility can make these loan types a good choice for those who plan to hold the property for long-term investment.