3 Best Apartment Loan Options

There are three types of financing available to small business owners looking for a loan to purchase an apartment complex. The type of loan they choose comes down to how well qualified they’re and how long they plan on keeping the building after purchasing it.

Here are the three best types of apartment loan options:

  • Government-backed apartment loan: Best for prime borrowers who want a loan with a low down payment and an affordable interest rate.
  • Bank balance sheet apartment loan: Best for an absentee owner who cannot qualify for a government loan.
  • Short-term apartment loan: Best for investors who want to quickly purchase an apartment building and compete with cash buyers by closing in as soon as 10 days.

If you’re looking for apartment financing, RCN Capital is an excellent choice. With short-term financing of up to $10 million and long-term financing of up to $3 million, RCN Capital offers different multifamily financing options to purchase properties of more than five units. Check out its website for more information.

1. Government-backed Apartment Loans

Whether you’re refinancing or purchasing an apartment complex, government-backed apartment loans are an excellent choice. These loans follow guidelines from one of three entities: the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Company (Freddie Mac), or the Federal Housing Administration (FHA). Because the government backs these loans, interest rates are very low, but the loans have more stringent regulations.

These loans often require “local ownership,” meaning the borrower can only invest in an apartment building within the community where they reside.

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Loan amounts go as high as $6 million for up to 35 years. Because of the additional regulations that come with government-backed loans, expect funding time to be the longest of the three types on this list. Some loans may take up to six months to close.

It’s important to see if the loan has a minimum occupancy requirement, whether they are recourse or nonrecourse, and whether the loan is assumable or not assumable. These will vary depending on which loan program you choose, so be sure to know the exact terms required before moving forward.

One specific FHA multifamily loan, the HUD FHA 223(f) loan, is the best choice for apartment lending. It has a loan floor of $1 million and has a maximum LTV of 87%.

Government-backed commercial real estate loan rates can either be fixed or variable. The loans can either be fully amortizing or they’ll have an interest-only period of up to 10 years with a balloon payment at the end.

One of the top providers of government-backed apartment loans is the Commercial Real Estate Finance Company of America (CREFCOA). Check out CREFCOA’s website for more information.

2. Bank Balance Sheet Apartment Loans

Bank balance sheet apartment loans, also known as portfolio loans, are held by the lender that issues the initial loan. They aren’t sold on the secondary market, so they don’t have to adhere to the requirements of government-backed loans. However, this means they aren’t backed by the government, which can mean higher interest rates and fees.

One advantage of not being backed by government regulations is that the lender can choose to allow higher debt to income, loan to value, and loan size maximums. Due to the high costs of apartment complex financing, the higher maximums can give bank balance sheet apartment loans an edge over other investment property financing options.

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These loans are a good choice for “absentee owners” or owners who don’t live in the community where they own an apartment complex. Bank loans are typically recourse loans, meaning the borrower is personally liable. Bank balance sheet apartment loans are generally easier to qualify for and are funded more quickly than government-backed loans.

CoreVest is an excellent choice for bank balance sheet apartment financing. You can apply directly through CoreVest’s website, and there are contact forms and a chatbot available to answer any questions. Visit CoreVest’s website for more information.

3. Short-term Apartment Loans

Short-term apartment loans can allow you to renovate, rehabilitate, or expand an existing apartment complex. The biggest advantage to short-term financing is the funding speed—loans fund within 10 days. This allows you rapid access to funding, allowing you to compete with all-cash offers on properties.

There are two types of short-term loans that are most commonly used: hard money loans and commercial bridge loans.

A hard money loan is used by borrowers who cannot obtain permanent financing due to properties being in disrepair or credit issues. Hard money loans are easier to qualify for, with minimum credit scores as low as 550. However, interest rates and fees will be much higher. For that reason, hard money loans are considered last-resort financing.

Commercial bridge loans provide funds to purchase a property with additional funds to help with renovations. Bridge loans are harder to qualify for but have lower interest rates than hard money loans.

Short-term loans have a maximum term of fewer than six years, with most of them three years or shorter. At that point, the loan must be refinanced into permanent financing or sold for profit. Typically, fix-and-flip investors will use short-term apartment loans to acquire, renovate, and sell a property quickly.

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RCN Capital is a good choice for short-term apartment loans. You can apply through RCN Capital’s website, with funding in as soon as 10 days. The company also offers long-term financing options for those who qualify. Visit RCN Capital’s website for information on its loan offerings.

Bottom Line

Borrowers looking to acquire an apartment building have three different loan types from which to choose:

Government-backed loans are the most regulated and take the longest to fund. However, government guidelines protect the borrower from excessive rates and fees.

Bank balance sheet apartment loans provide loans that don’t conform to government guidelines. This can allow you to borrow more money at higher loan to value and debt to income maximums, but you could also end up with higher interest rates and fees.

Short-term apartment loans are ideal for fix-and-flip investors looking to compete with all-cash offers on apartment complexes. These loans are the easiest to qualify for, but fees and interest rates can be very high, especially with hard money loans. Short-term loans have the quickest funding time.

Before proceeding with apartment building financing, be sure to check out our guide to getting a small business loan. Depending on how strong your credit and financials are and how long you plan to keep the property, there is a type of apartment loan to meet your needs.