Can You Get a Mortgage on an Apartment Building? Options & Requirements

Yes, you absolutely can get a mortgage on an apartment building. In fact, there are multiple financing options designed specifically for apartment buildings and multifamily properties. Whether you're looking to purchase your first 5-unit apartment or a 100-unit complex, specialized commercial mortgage programs can help you secure the funding you need.

The key difference from traditional home mortgages is that apartment building financing falls under commercial real estate lending. This means lenders focus primarily on the property's income-generating potential rather than your personal income. This approach actually makes it easier for many investors to qualify, especially when using income-based loan products like DSCR loans.

In this comprehensive guide, we'll explore the different mortgage options available for apartment buildings, qualification requirements, and how to choose the right financing for your investment goals.

Understanding Commercial vs Residential Mortgages

The first step in financing an apartment building is understanding the fundamental difference between commercial and residential mortgages.

Residential mortgages are designed for properties with 1-4 units. If you're buying a duplex, triplex, or fourplex, you can typically use conventional, FHA, or VA loans with down payments as low as 3.5-20%. These loans are based on your personal income, credit score, and debt-to-income ratio.

Commercial mortgages come into play for properties with 5 or more units. Once you cross that threshold, you're in commercial real estate territory. These loans evaluate the property's ability to generate income rather than relying solely on your personal finances.

This distinction is actually advantageous for real estate investors. Instead of being limited by your W-2 income, commercial lenders focus on metrics like Debt Service Coverage Ratio (DSCR), occupancy rates, and net operating income. This means you can potentially qualify for much larger loans based on the property's performance.

For apartment buildings specifically, multifamily financing programs offer several benefits:

• Higher loan amounts - Finance properties worth millions of dollars
• Income-based qualification - Your rental income is the primary qualifying factor
• Portfolio growth - Build your real estate portfolio without hitting lending limits
• Professional property management - Lenders expect professional management, which improves operations
• Long-term wealth building - Apartment buildings offer economies of scale and cash flow

The choice between commercial and residential financing depends entirely on your property size. If you're considering a small apartment building (5-10 units), you'll need a commercial mortgage. For larger complexes, you'll have access to even more specialized loan products from agencies like Fannie Mae and Freddie Mac.

Types of Apartment Building Mortgages

When it comes to financing an apartment building, you have several mortgage options. Each loan type has specific requirements, benefits, and ideal use cases. Understanding these options helps you select the best fit for your investment strategy and property type.

DSCR Loans (Debt Service Coverage Ratio)

DSCR loans have become the go-to option for real estate investors purchasing apartment buildings. These loans qualify you based solely on the property's rental income, not your personal income or tax returns.

Here's how they work: Lenders calculate the property's DSCR by dividing the net operating income by the total debt service (mortgage payment). A DSCR of 1.25 means the property generates 25% more income than needed to cover the mortgage payment.

Key benefits of DSCR loans:

• No income verification or tax returns required
• Qualify based on property performance
• Close in 2-3 weeks
• Available for foreign nationals and self-employed borrowers
• Flexible underwriting

Calculate your DSCR to see if you qualify for this type of financing.

Agency Loans (Fannie Mae & Freddie Mac)

For larger, stabilized apartment buildings, agency loans offer the best rates and terms. Fannie Mae and Freddie Mac provide financing for apartment buildings through their multifamily lending programs.

These loans typically feature:

• Interest rates 0.5-1.5% lower than other commercial options
• Non-recourse financing (limited personal liability)
• Loan amounts from $1 million to $100+ million
• 5, 7, 10, and 30-year fixed-rate options
• Green financing incentives for energy-efficient properties

The trade-off is stricter requirements. You'll need extensive real estate experience, excellent credit, significant reserves, and a stabilized property with strong occupancy (typically 85-90% minimum).

CMBS Loans (Commercial Mortgage-Backed Securities)

CMBS loans are ideal for larger apartment complexes (typically 50+ units) and offer fixed-rate financing that's securitized and sold to investors. These loans provide:

• Competitive fixed rates
• Non-recourse structure
• Loan amounts from $2 million to $50+ million
• 5, 7, and 10-year terms

The downside is less flexibility. CMBS loans come with prepayment penalties (defeasance or yield maintenance) that make them difficult to refinance early. They're best for long-term hold strategies.

Portfolio/Bank Loans

Local and regional banks offer portfolio loans that they hold on their own books rather than selling. These loans provide more flexibility but typically require a strong banking relationship.

Portfolio loans work well when:

• Your property or situation doesn't fit agency guidelines
• You want flexible terms negotiated directly with the bank
• You have other banking relationships that strengthen your application
• You're willing to accept recourse financing

Rates and terms vary significantly by bank, so shopping around is essential.

Bridge Loans

Bridge loans provide short-term financing (6-36 months) for apartment buildings that need work or stabilization. They're perfect for:

• Value-add opportunities requiring renovation
• Properties with low occupancy that need leasing
• Quick closings and acquisitions
• Transitional properties

Bridge loans feature higher rates (7-12%) but offer speed and flexibility. Many investors use bridge financing to acquire and stabilize a property, then refinance into long-term agency or DSCR financing.

Qualification Requirements for Apartment Mortgages

Qualifying for an apartment building mortgage involves different criteria than traditional home loans. Lenders evaluate both you as the borrower and the property's financial performance.

Property-Based Requirements

Debt Service Coverage Ratio (DSCR): This is the most critical metric for apartment mortgages. Most lenders require a minimum DSCR of 1.20-1.30, meaning the property's net operating income must be 20-30% higher than the mortgage payment.

Occupancy Rate: Lenders want to see stable, high occupancy. Most require at least 80-85% occupancy, with agency loans often requiring 90%+. Properties with lower occupancy may still qualify for bridge loans.

Property Condition: The building must meet minimum property standards. Deferred maintenance, code violations, or significant repairs needed can disqualify you from certain loan types or require escrowed renovation funds.

Net Operating Income (NOI): Your property's NOI (rental income minus operating expenses) must be sufficient to support the loan amount. Lenders will review current rent rolls, lease agreements, and operating statements.

Borrower Requirements

Credit Score: Minimum scores range from 620-720 depending on loan type. DSCR loans are more flexible (640-680), while agency loans require 700+.

Experience: Most commercial lenders want to see real estate investment experience. First-time apartment buyers may need to start with smaller properties or bring on experienced partners. Having successfully managed other rental properties strengthens your application.

Reserves: You'll need cash reserves to cover 6-18 months of mortgage payments, property taxes, and insurance. Agency loans require the most reserves, while bridge loans require less.

Down Payment: Expect to put down 20-35% depending on the loan type and property. Here's the typical breakdown:

• DSCR loans: 20-25%
• Agency loans: 20-35% (varies by loan-to-value targets)
• Bridge loans: 25-40%
• Portfolio loans: 25-35%

Liquidity: Beyond reserves, lenders want to see overall financial strength. Having significant liquid assets demonstrates your ability to handle unexpected expenses or market changes.

Documentation You'll Need

While DSCR loans require minimal documentation, most apartment building mortgages require comprehensive paperwork:

• Property documents: Rent roll, current leases, operating statements (T-12 and YTD), property tax bills, insurance policies
• Financial statements: Personal financial statement, bank statements (2-3 months), proof of reserves
• Property analysis: Appraisal, environmental report (Phase I), property condition report
• Business documents: Operating agreement or entity documents, business plan (for value-add projects)
• Personal information: Credit report authorization, government ID, proof of entity ownership

Working with an experienced multifamily lender like Clear House Lending streamlines this process. We'll provide a clear checklist and guide you through each documentation requirement.

The Apartment Mortgage Application Process

Securing financing for an apartment building follows a structured process:

1. Pre-Qualification (1-3 days): Discuss your goals and property with a lender. Provide basic information about the property and your financial situation. Receive preliminary loan options and estimated terms.

2. Property Analysis (1-2 weeks): Order appraisal and property condition reports. Review rent roll and operating statements. Lender underwrites the property's cash flow and value.

3. Loan Application (3-5 days): Complete formal application. Submit all required documentation. Pay application and processing fees.

4. Underwriting (1-3 weeks): Lender reviews all documentation. May request additional information or clarifications. Issues loan commitment letter with final terms.

5. Closing (1-2 weeks): Review and sign loan documents. Satisfy any remaining conditions. Transfer funds and close on the property.

The entire process typically takes 30-60 days for conventional commercial loans, though DSCR loans can close in as little as 2-3 weeks.

Special Considerations for Different Property Sizes

Small Apartment Buildings (5-20 units)

Smaller apartment buildings offer an excellent entry point into commercial real estate. DSCR loans work particularly well for this size range, offering:

• Faster closing times
• Less stringent experience requirements
• Simplified documentation
• Competitive rates for the property class

Many investors start with 5-10 unit buildings to gain experience before scaling up to larger properties.

Mid-Size Complexes (20-50 units)

This size range opens up more financing options. You can choose between DSCR loans for speed and simplicity, or pursue agency financing for better rates if your property and experience level qualify.

Mid-size properties benefit from economies of scale while remaining manageable for investors transitioning from smaller buildings.

Large Apartment Complexes (50+ units)

Large complexes typically qualify for the best financing terms through agency or CMBS loans. These properties generate enough income to justify professional management and attract institutional-quality financing.

At this scale, having an experienced team (property manager, attorney, CPA, commercial broker) becomes essential. The due diligence and underwriting process is more extensive, but the rewards in cash flow and appreciation potential are significant.

Common Mistakes to Avoid

Underestimating Operating Expenses: New apartment building owners often underestimate expenses like maintenance, repairs, management fees, and vacancy. Use conservative expense ratios and budget for surprises.

Ignoring Market Research: Understanding your local rental market is critical. Overestimating rents or occupancy rates will hurt your DSCR and cash flow projections.

Choosing the Wrong Loan Type: Match your loan to your investment strategy. Don't use a bridge loan for a long-term hold, and don't lock into a CMBS loan if you plan to sell in a few years.

Skipping Property Inspections: Always conduct thorough due diligence. Hidden deferred maintenance or structural issues can destroy your returns and make refinancing difficult.

Neglecting Cash Reserves: Even with a strong DSCR, unexpected expenses happen. Maintain adequate reserves to weather vacancies, repairs, and market downturns.

How Clear House Lending Can Help

Navigating apartment building financing can feel overwhelming, especially with multiple loan options and complex requirements. That's where Clear House Lending makes the difference.

Our team specializes in multifamily financing, from small 5-unit buildings to large apartment complexes. We offer:

Multiple Loan Products: Access to DSCR loans, agency financing, bridge loans, and portfolio products means we can match you with the right financing for your specific property and goals.

Experienced Guidance: Our loan officers have decades of combined experience in commercial multifamily lending. We'll help you structure your loan for maximum benefit and guide you through the entire process.

Competitive Rates: We work with a network of lenders to ensure you receive competitive rates and terms. Our volume and relationships often result in better pricing for our clients.

Fast Processing: Time is money in real estate. Our streamlined process gets you from application to closing quickly, with DSCR loans closing in as little as 2-3 weeks.

Nationwide Service: We finance apartment buildings across all 50 states, so wherever your investment property is located, we can help.

Whether you're purchasing your first small apartment building or refinancing a large complex, we have the expertise and loan products to support your investment goals.

Next Steps: Get Pre-Qualified Today

Ready to finance your apartment building purchase or refinance? Getting started is simple.

Contact our multifamily lending team to discuss your property and investment goals. We'll review your situation, explain your options, and provide preliminary loan terms.

Calculate your DSCR to see how your property's income compares to the mortgage payment. This quick calculation helps you understand if your numbers work.

Apply online if you're ready to move forward. Our streamlined application takes just minutes, and you'll receive a response within 24-48 hours.

Financing an apartment building is a significant step in building long-term wealth through real estate. With the right loan structure and an experienced lending partner, you can secure competitive financing that supports your investment strategy.

The answer to "Can you get a mortgage on an apartment building?" is a definitive yes. The better question is: which mortgage option is right for your property and goals? Let's discuss your options today and find the perfect financing solution for your apartment building investment.