Understanding the Basics of Apartment Building Loans

Whether you’re interested in purchasing an apartment building or require additional funding for exterior/interior upgrades to an existing one, there are specific loans available for apartment buildings and similar commercial properties from many financial institutions.

Aside from going into pocket (if it’s available), there are several types of these loans available. A simple online search reveals varying rates, terms, conditions and how to qualify. Nonetheless, understanding the basics of how an apartment building loan process works is essential to getting the funding you require.

How to Qualify for an Apartment Building Loan

To start with and according to an article on www.hsh.com, detailed information including your experience as a rental property owner, management history, and overall ability of managing the building you’re requesting funding for is required. While it may go without saying, the same article explained that a current credit score, two year’s of operating statements, and up-to-date documents of existing renters is also needed.

While these are very important, anyone with solid business acumen should also realize that net operating income, a loan-to-value ratio, and debt service coverage are some of the top documents to also prove and provide. A down payment is also commonly required and may vary from lender to lender.

Simply put, the building’s revenue stream needs to handle the debt/payments to pay off the loan over the set term.

What are the Common Terms?

Terms and conditions vary widely as there are different loans for different types of apartment buildings. Loan stipulations may also reflect the current state of the U.S. economy and the condition of the commercial property market.

To provide a little insight, the Commercial Real Estate Finance Company of America (CREFCOA) states that Freddie Mac Small Business Loan (SBL) – one of the leaders among the 5+ unit loan market – offers many viable loan options. Some highlights of its SBL loan program include lending amounts from $1 million to $7.5 million, locked interest rates, partial- and full-term interest, and competitive rates. Other nationwide incentives are also worth inquiring about.

These are just two of the important aspects to consider when inquiring about an apartment building loan. For all the details and requirements, set up an appointment with your local lender or financial institution to ensure you’re aware of all the guidelines before you start the application process.