Can You Get a Mortgage on an Apartment Building?

Apartment buildings represent one of the most attractive investment opportunities in real estate. The combination of multiple income streams, economies of scale, and strong appreciation potential draws investors of all sizes. But can you get a mortgage on an apartment building? Absolutely, though the process differs significantly from financing a single-family home or even a small multi-unit property.

Apartment building mortgages, typically called commercial real estate loans, are specifically designed for properties with five or more units. These loans focus primarily on the property's ability to generate income rather than your personal financial situation, opening opportunities for investors who might not qualify for traditional residential mortgages.

Get rates in 24 hours

What Makes Apartment Building Financing Different From Residential Mortgages?

The fundamental difference between apartment building financing and residential mortgages lies in how lenders evaluate the loan. Residential mortgages focus primarily on you as the borrower, examining your income, credit score, and debt-to-income ratio. Commercial apartment loans focus primarily on the property itself.

When you apply for an apartment building mortgage, lenders analyze the property's net operating income (NOI), occupancy rates, tenant quality, location, and physical condition. Your personal finances matter, but they take a secondary role to the property's performance metrics.

This property-focused approach creates both opportunities and challenges. Investors with strong property deals can sometimes qualify for apartment loans even when their personal finances might not support a residential mortgage. Conversely, a weak property may not qualify for financing regardless of your personal wealth.

Commercial apartment loans also have different structural characteristics. Terms are typically shorter, ranging from 5 to 25 years rather than the 30-year mortgages common in residential lending. Interest rates may be fixed or adjustable, and many loans include balloon payments at the end of the term.

Understanding these differences is essential before you start shopping for apartment buildings. The financing you can obtain directly impacts which properties you can purchase and the returns you can expect to achieve.

What Types of Loans Are Available for Apartment Buildings?

Several distinct loan products exist for apartment building financing, each with unique characteristics suited to different investor needs and property types.

Agency loans from Fannie Mae and Freddie Mac represent the gold standard for apartment financing. These government-sponsored enterprises purchase apartment loans from lenders, providing liquidity that enables competitive rates and terms. Agency loans offer fixed rates, terms up to 30 years, and non-recourse options for qualified borrowers.

Fannie Mae's Small Balance program targets properties with loan amounts between $750,000 and $6 million, making agency financing accessible for smaller apartment buildings. Freddie Mac's Small Balance Loan program offers similar accessibility with competitive terms.

Bank and credit union loans provide another financing avenue. Local and regional banks often have appetite for apartment loans, particularly for properties in their service areas. These loans typically require personal guarantees and may have shorter terms, but the relationship-based underwriting can benefit borrowers with unique situations.

SBA loans offer compelling options for certain apartment purchases. The SBA 504 program provides long-term, fixed-rate financing for owner-occupied properties with down payments as low as 10%. Our detailed guide on SBA loans for apartment complexes explains how to leverage this program.

CMBS (Commercial Mortgage-Backed Securities) loans pool multiple commercial mortgages into securities sold to investors. These loans offer competitive rates and non-recourse terms but have strict prepayment penalties and less flexible servicing.

Bridge loans provide short-term financing for properties that need repositioning. If you are purchasing an apartment building with low occupancy or below-market rents, a bridge loan can fund the acquisition and improvements until the property stabilizes and qualifies for permanent financing.

HUD and FHA apartment loans offer exceptionally long terms (up to 35 years) and competitive rates for properties that serve affordable housing needs. These loans have extensive documentation requirements and longer processing times but provide excellent long-term financing for qualifying properties.

How Much Down Payment Do You Need for an Apartment Building?

Down payment requirements for apartment buildings typically range from 20% to 30% of the purchase price, though some programs allow less under specific circumstances.

Agency loans from Fannie Mae and Freddie Mac generally require 20% to 25% down for apartment buildings. The exact requirement depends on factors like property condition, market strength, and borrower experience. First-time apartment investors may face higher down payment requirements than experienced operators.

Bank loans often require 25% to 30% down, though strong relationships and extensive reserves may enable lower down payments in some cases. Credit unions may offer slightly more favorable terms for members.

SBA 504 loans stand out with down payments as low as 10% to 15% for owner-occupied apartment buildings. The owner-occupancy requirement means you must use at least 51% of the property for your own business, which typically works for hospitality-style properties or mixed-use developments rather than traditional apartment buildings.

Bridge loans typically require 20% to 30% down but evaluate the property based on its after-renovation value rather than current condition. This allows you to purchase distressed properties with less cash upfront relative to the improved value.

Our comprehensive guide on commercial building down payments provides detailed information about down payment requirements across different property types and loan programs.

What Credit Score and Experience Do Lenders Require?

While apartment building loans focus primarily on property performance, your personal qualifications still matter. Lenders want confidence that you can successfully manage the property and navigate challenges that may arise.

Credit score requirements for apartment loans typically start at 660 to 680 for most programs. Agency loans through Fannie Mae and Freddie Mac may require scores of 680 or higher. Bank loans vary based on the institution and relationship factors. Some alternative lenders work with scores as low as 620 for strong properties.

Experience managing rental properties carries significant weight in apartment loan applications. First-time apartment investors can still qualify, but you may face higher down payment requirements, require a co-sponsor with experience, or be limited to smaller properties initially.

Lenders typically want to see a track record of managing at least a few rental units before they will approve financing for larger apartment buildings. Starting with smaller multifamily properties and building your portfolio gradually is a common path to larger deals.

Net worth and liquidity requirements ensure you can handle unexpected challenges. Most lenders want to see net worth equal to at least the loan amount and liquid reserves covering 6 to 12 months of operating expenses plus debt service.

The combination of credit score, experience, and financial strength creates your overall borrower profile. Weakness in one area can sometimes be offset by strength in others, though all three factors contribute to your loan options and terms.

How Do Lenders Evaluate an Apartment Building's Income?

Debt service coverage ratio (DSCR) is the primary metric lenders use to evaluate whether an apartment building's income can support the proposed loan. Understanding this calculation helps you identify properties that will qualify for financing.

DSCR compares the property's net operating income (NOI) to its annual debt service (mortgage payments). A DSCR of 1.25 means the property generates 25% more income than needed to cover the mortgage. Most lenders require minimum DSCRs between 1.20 and 1.35 for apartment loans.

To calculate DSCR, start with the property's gross potential rent, which is the total rent if all units were occupied at market rates. Subtract vacancy losses (typically 5% to 10%) to get effective gross income. Add any other income from parking, laundry, or storage.

From effective gross income, subtract operating expenses including property taxes, insurance, utilities, maintenance, management fees, and reserves for capital improvements. The result is net operating income.

Divide NOI by the annual mortgage payment to get DSCR. For example, a property with $150,000 annual NOI and $120,000 annual debt service has a DSCR of 1.25.

Lenders scrutinize the income and expense figures that produce NOI. They will request trailing 12-month operating statements (T12), current rent rolls, utility bills, and tax returns. Inflated income or understated expenses will be identified and adjusted during underwriting.

Talk to an expert

Properties with below-market rents or high vacancy may not qualify for permanent financing based on current income but could be excellent candidates for bridge loans that consider the potential income after improvements.

What Documentation Do You Need for an Apartment Building Loan?

The documentation requirements for apartment building loans are extensive. Having these materials organized before you apply significantly speeds up the process and demonstrates your professionalism to lenders.

Property financial documents include the current rent roll showing unit numbers, tenant names, lease terms, and current rents. You will need the trailing 12-month operating statement (T12) showing all income and expenses, utility bills for the past 12 to 24 months, and property tax bills.

Property physical documents include the unit mix breakdown (number of studios, one-bedrooms, etc.), amenities list, recent capital improvements, and any existing property inspection reports. Photos of the property interior and exterior are typically required.

Personal financial documents include two to three years of personal and business tax returns, a current personal financial statement, bank and investment account statements, and documentation for any entities that will hold the property.

Third-party reports ordered during the loan process include a commercial appraisal ($5,000 to $15,000 depending on property size), Phase I environmental assessment ($3,000 to $8,000), and property condition assessment ($2,000 to $5,000). Some lenders may require additional reports like surveys, zoning letters, or seismic assessments.

Legal documents include the purchase contract, preliminary title report, existing lease abstracts, and entity formation documents if purchasing through an LLC or corporation.

The appraisal is particularly important for apartment buildings because it determines the maximum loan amount based on loan-to-value ratios. Unlike residential appraisals that focus primarily on comparable sales, commercial appraisals give significant weight to the income approach, which values the property based on its income-producing capability.

How Long Does the Apartment Building Loan Process Take?

Expect the apartment building loan process to take 60 to 120 days from application to closing, depending on the loan type and property complexity. Some programs take even longer.

Agency loans through Fannie Mae and Freddie Mac typically close in 60 to 90 days. The standardized programs and experienced lenders help streamline the process, though complex properties or first-time borrowers may extend the timeline.

Bank loans vary widely based on the institution. Smaller community banks that prioritize relationships may move quickly when motivated, while larger banks with rigid processes may take 90 days or more.

SBA loans require additional government approvals that extend the timeline to 90 to 120 days or longer. The lower down payment and favorable terms may justify the additional patience required.

HUD and FHA apartment loans take the longest, often 120 to 180 days due to extensive government review processes. These loans work best for borrowers who prioritize long-term cost savings over speed.

Bridge loans from private lenders can close in as little as 2 to 4 weeks when speed is essential. This velocity comes at a cost through higher interest rates and fees but enables investors to capture time-sensitive opportunities.

Building relationships with lenders before you need financing helps accelerate the process. Lenders who know your track record and financial situation can move faster because they have already completed much of the borrower analysis.

Use our commercial mortgage calculator to estimate your loan payments and evaluate different financing scenarios before you apply.

What Are Recourse vs Non-Recourse Loans?

Understanding the difference between recourse and non-recourse loans is crucial for apartment investors because it affects your personal risk exposure.

Recourse loans include a personal guarantee. If the property fails and the foreclosure sale does not cover the loan balance, the lender can pursue your personal assets to recover the difference. Most bank loans and smaller commercial loans are recourse.

Non-recourse loans limit the lender's recovery to the property itself. If the property fails, you may lose your equity investment, but the lender cannot pursue your personal assets for any remaining balance. This protection is valuable but comes with trade-offs.

Non-recourse loans typically have stricter qualification requirements because the lender cannot rely on personal assets for recovery. They may require higher down payments, stronger DSCR ratios, or more experienced borrowers.

Agency loans from Fannie Mae and Freddie Mac offer non-recourse terms for qualified borrowers, making them particularly attractive for investors seeking liability protection. CMBS loans are also generally non-recourse.

Even non-recourse loans include carve-outs, or bad boy provisions, that convert the loan to full recourse if you engage in fraud, misappropriation of funds, voluntary bankruptcy, or other specified bad acts. These provisions protect lenders from intentional borrower misconduct while maintaining non-recourse protection for normal business risks.

The choice between recourse and non-recourse financing depends on your risk tolerance, portfolio structure, and the available terms. Many investors prefer non-recourse loans for larger properties while accepting recourse on smaller deals where the liability exposure is more limited.

What Are the Best Strategies for First-Time Apartment Investors?

Breaking into apartment building ownership requires strategic planning, especially if you lack experience that lenders want to see.

Starting with smaller properties builds the track record lenders require. A 2-4 unit multifamily property using residential financing provides landlord experience without commercial loan complexity. After managing these properties successfully, you will have the credentials to pursue larger apartment buildings.

Our guide on whether it is hard to get a multifamily loan explores strategies for first-time investors in detail.

Partnering with experienced operators can satisfy lender requirements while you learn the business. A partner who has successfully managed apartment buildings can serve as a loan guarantor or key principal, enabling you to pursue deals that would otherwise be inaccessible.

Syndication allows you to invest in apartment buildings as a passive investor, building capital and learning the business before operating your own deals. Many successful apartment investors started by investing in others' projects before striking out on their own.

Building relationships with commercial lenders before you need financing provides advantages when opportunities arise. Meet with local bank commercial loan officers, attend commercial real estate networking events, and engage with mortgage brokers who specialize in apartment financing.

For those interested in building from the ground up, our guide on how to finance apartment building construction covers construction loan options and requirements.

What Common Mistakes Should You Avoid?

Apartment building purchases can go wrong in several predictable ways. Understanding these pitfalls helps you avoid costly errors.

Overestimating income is the most common mistake. Sellers and their brokers often present properties using pro forma projections that assume full occupancy at maximum rents. Always underwrite based on actual trailing income and verify the numbers through rent rolls, bank deposits, and tax returns.

Underestimating expenses equally dangerous. Request detailed expense documentation and compare to industry benchmarks for similar properties. Be skeptical of properties with unusually low operating expense ratios.

Failing to budget for capital improvements catches many new apartment investors. Older buildings require ongoing investment in roofs, HVAC systems, parking lots, and unit renovations. Reserve at least 5% to 10% of effective gross income for capital expenses.

Moving too fast without proper due diligence creates problems that could have been avoided. Take time to verify all property information, complete thorough inspections, and understand the market dynamics that will affect your investment.

Choosing the wrong loan structure can saddle you with unfavorable terms or insufficient flexibility. Work with an experienced commercial mortgage broker who can present multiple options and help you select the financing that best matches your investment strategy.

Ready to Finance Your Apartment Building?

Yes, you can absolutely get a mortgage on an apartment building. The commercial lending world offers numerous options for financing properties with five or more units, from agency loans with competitive rates to bridge financing for value-add opportunities.

Success requires understanding how commercial loans differ from residential mortgages, preparing thorough documentation, and selecting the right loan product for your specific situation. The focus on property income rather than personal finances creates opportunities that residential lending cannot match.

Whether you are purchasing your first apartment building or expanding an existing portfolio, the right financing partner makes a significant difference. Experienced commercial lenders understand the nuances of apartment financing and can help you navigate the process efficiently.

For a complete overview of financing options, see our guide on what kind of loan to buy an apartment building.

Get a free consultation

Our team specializes in apartment building financing across all property sizes and investor experience levels. We will analyze your deal, explain your options, and help you secure the optimal financing for your investment. Contact us today to discuss your apartment building purchase.