Multifamily Construction Loan: Complete 2026 Guide

You have the land. You have the vision for a 50-unit apartment complex that will transform an underutilized parcel into workforce housing your community desperately needs. What you do not have is a clear path to financing the $12 million construction project.

If this sounds familiar, you are not alone. Securing a multifamily construction loan remains one of the most challenging aspects of apartment development. Unlike stabilized property loans with predictable underwriting, construction financing requires lenders to bet on your ability to execute a complex project on time and on budget.

The good news? Multiple financing programs exist specifically for multifamily construction, ranging from government-backed HUD loans offering 85-90% leverage to private bridge lenders who can close in weeks. Understanding which program fits your project, your experience level, and your timeline is the key to moving from blueprints to groundbreaking.

This guide breaks down everything you need to know about multifamily construction loans in 2026, including current rates, leverage limits, qualification requirements, and a step-by-step roadmap to funding your next development.

What Is a Multifamily Construction Loan and How Does It Work?

A multifamily construction loan is short-term financing designed specifically to fund the ground-up development or substantial rehabilitation of apartment buildings with five or more units. Unlike traditional mortgages that provide a lump sum at closing, construction loans disburse funds in stages called "draws" as your project reaches predetermined milestones.

Here is how the typical structure works:

Interest-Only Payments: During construction, you only pay interest on funds that have been drawn. If you have received $3 million of a $10 million loan, you pay interest on $3 million.

Draw Schedule: Your lender releases funds according to a predetermined schedule tied to construction milestones. Each draw requires an inspection verifying the work has been completed.

Interest Reserve: Most lenders require you to set aside funds (often capitalized into the loan) to cover interest payments during construction when the property generates no income.

Conversion to Permanent Financing: Once construction is complete and the property reaches a target occupancy (typically 90%), the construction loan either converts to permanent financing or must be paid off through a refinance.

The construction period typically ranges from 12-24 months depending on project size and complexity, with an additional 6-12 months for lease-up and stabilization.

How Much Can You Borrow With a Multifamily Construction Loan?

Lender appetite for construction risk has shifted significantly since 2022, with most traditional banks now requiring more equity from developers. Understanding current leverage limits helps you plan your capital stack realistically.

Loan-to-Cost (LTC) is the primary metric lenders use during construction. This ratio compares your loan amount to total project costs, including:

• Land acquisition
• Hard costs (actual construction)
• Soft costs (architecture, engineering, permits, legal)
• Interest reserve
• Contingency

Here is where leverage stands across different lender types in 2026:

• HUD 221(d)(4): 85% LTC for market-rate, 87% for affordable, 90% for rental assistance properties
• National Banks/Life Companies: 65-70% LTC
• Regional/Community Banks: 70-75% LTC
• Credit Unions: Up to 75% LTC
• Private/Bridge Lenders: 65-70% LTC

The gap between HUD's 85% leverage and a bank's 70% LTC represents significant additional equity you must bring to the table. On a $15 million project, that difference equals $2.25 million more out of pocket.

What Are the Requirements to Qualify for a Multifamily Construction Loan?

Lenders scrutinize construction loan applications more heavily than acquisition financing because they are funding a project that does not yet exist. Here is what underwriters evaluate:

Developer Experience

This is often the most critical factor. Ground-up multifamily construction loans are not available to first-time developers. Lenders want to see:

• Successful completion of similar-sized projects
• Experience with the specific product type (garden-style, mid-rise, high-rise)
• Track record in the target market
• Relationships with reliable general contractors

If you lack development experience, partnering with an experienced developer or bringing on a construction consultant can help bridge the gap.

Financial Strength

Beyond the property, lenders evaluate your personal and corporate financial capacity:

• Liquidity: Cash or near-cash assets to cover cost overruns. Expect to show 10-15% of total project costs in liquid reserves.
• Net Worth: Many lenders require net worth equal to the loan amount.
• Credit Score: Minimum 680 for most programs, though 700+ provides better terms.

Project Feasibility

Your development must make economic sense:

• Market Study: Third-party analysis showing demand for your unit types and projected rents
• Appraisal: "As-complete" value supporting the loan amount
• DSCR Projections: Stabilized debt service coverage of 1.20x-1.25x minimum
• Cost Estimates: Detailed construction budget from a licensed general contractor

What Does the Multifamily Construction Loan Process Look Like?

Securing construction financing involves significantly more steps than a standard commercial loan. Here is the typical timeline and process:

Phase 1: Pre-Development (3-6 months before loan application)

Before approaching lenders, you need:

• Site control (purchase contract or ownership)
• Preliminary architectural plans
• Zoning confirmation or entitlement timeline
• Initial cost estimates
• Market feasibility analysis

Phase 2: Lender Selection and Application (1-2 months)

Research lenders whose programs match your project profile. For projects under $7 million, focus on regional banks and credit unions. For larger developments, consider HUD 221(d)(4) if you can accommodate the longer timeline.

Submit a complete loan package including:

• Executive summary of the project
• Detailed development budget
• Pro forma with rent projections
• Personal financial statements
• Entity documentation
• Preliminary plans and specifications

Phase 3: Underwriting and Due Diligence (1-3 months for banks, 12-18 months for HUD)

The lender will order third-party reports including:

• Appraisal (as-is and as-complete values)
• Phase I Environmental Site Assessment
• Market study
• Plan and cost review

Expect multiple rounds of questions and document requests during this phase.

Phase 4: Approval and Closing (2-4 weeks)

Once underwriting is complete, you will receive a commitment letter outlining final terms. Legal counsel prepares loan documents, and closing occurs once all conditions are satisfied.

Phase 5: Construction Administration

During construction, you will submit draw requests (typically monthly) that include:

• Contractor invoices
• Lien waivers from subcontractors
• Progress photos
• Updated budget tracking

The lender's inspector verifies work completion before releasing each draw.

Ready to discuss your multifamily construction project? Contact our construction lending team for a confidential consultation.

How Do HUD 221(d)(4) Loans Compare to Bank Construction Financing?

The choice between HUD financing and conventional bank loans often comes down to timeline versus leverage. Here is a detailed comparison:

HUD 221(d)(4) Advantages

The HUD 221(d)(4) program offers the most attractive terms for multifamily construction:

• Maximum Leverage: 85% LTC for market-rate, up to 90% for affordable housing
• Non-Recourse: No personal guarantee required
• Long-Term Fixed Rate: The 18-month construction loan converts automatically to a 40-year fully amortizing permanent loan
• Lowest Long-Term Cost: Fixed rates currently in the 5.5-6.5% range

HUD 221(d)(4) Challenges

• Timeline: Expect 12-18 months from application to closing
• Minimum Loan Size: $7 million minimum (some lenders require $10M+)
• Davis-Bacon Wages: Federal prevailing wage requirements increase labor costs 10-20%
• Extensive Documentation: Hundreds of forms and compliance requirements

When Bank Financing Makes More Sense

Consider conventional bank construction loans when:

• Your project is under $7 million
• You need to close within 60-90 days
• You plan to sell the property shortly after stabilization
• Davis-Bacon wage requirements would significantly impact project feasibility

What Interest Rates Should You Expect on Multifamily Construction Loans?

Construction loan rates vary significantly based on the loan program, your experience, and current market conditions. Here is what borrowers are seeing in early 2026:

HUD 221(d)(4): 5.5-6.5% fixed (includes mortgage insurance premium)

Bank Construction Loans: Typically priced as a spread over an index:

• Prime + 0.50% to Prime + 2.00%
• SOFR + 2.50% to SOFR + 4.00%

With Prime at approximately 7.50% as of January 2026, bank construction loan rates fall in the 8-9.5% range for well-qualified borrowers.

Private/Bridge Lenders: 9-12%+ with additional origination fees of 1-3 points

Rate Factors

Your specific rate depends on:

• Loan-to-cost ratio (lower leverage = better rate)
• Sponsor experience and financial strength
• Market location and property type
• Pre-leasing or pre-sales
• Recourse vs. non-recourse structure

What Are Common Mistakes to Avoid With Multifamily Construction Loans?

Even experienced developers encounter pitfalls with construction financing. Here are the most common mistakes and how to avoid them:

Underestimating Soft Costs

Many developers focus on hard construction costs while underbudgeting soft costs. A realistic soft cost budget typically runs 20-30% of hard costs and includes:

Inadequate Contingency

Construction rarely goes exactly to plan. Lenders require contingency reserves of 5-10% of hard costs, but developers sometimes try to minimize this line item to improve returns. A too-thin contingency can trigger a capital call or construction delay.

Choosing the Wrong Loan Program

A developer focused only on rate might select a bank loan at 7.5% over a HUD loan at 6%, not recognizing that the bank loan requires 25% more equity and includes personal recourse. Always evaluate the total cost of capital, not just the interest rate.

Ignoring the Permanent Financing Exit

Construction loans are temporary. Before closing on construction financing, understand your permanent financing options. Will you refinance with a Fannie Mae or Freddie Mac loan? Sell to a long-term holder? Having no clear exit strategy creates refinance risk at the worst possible time.

Explore your multifamily financing options with our specialized lending team.

How Should You Structure Your Capital Stack for Multifamily Construction?

Most multifamily construction projects require multiple capital sources. Here is how developers typically structure the capital stack:

Senior Construction Debt (60-85% of costs)

This is your primary construction loan from a bank, HUD, or other institutional lender. It sits in first lien position and gets repaid first.

Mezzanine Debt or Preferred Equity (5-15% of costs)

When senior debt does not provide enough leverage, mezzanine financing fills the gap. This subordinate capital typically costs 12-18% and may include profit participation.

Developer Equity (15-35% of costs)

Your cash investment in the project. This includes any land you contribute at appraised value.

LP Equity or Joint Venture Capital

Many developers raise equity from limited partners or enter joint ventures with institutional investors to fund their equity requirement.

What Documentation Do You Need for a Multifamily Construction Loan Application?

Prepare the following before approaching lenders:

Project Documentation

• Site survey and legal description
• Preliminary architectural drawings
• Detailed construction budget from general contractor
• Construction timeline
• Market study or feasibility analysis

Borrower Documentation

• Personal financial statements (all principals)
• Tax returns (3 years personal and business)
• Resume of development experience
• Entity formation documents
• Schedule of real estate owned

Third-Party Reports (lender will order, but you pay)

• Appraisal (as-is and as-complete)
• Phase I Environmental Site Assessment
• Geotechnical report
• Plan and cost review

Learn more about construction loan programs and documentation requirements.

What Trends Are Shaping Multifamily Construction Lending in 2026?

Several factors are influencing the construction lending landscape this year:

Increased GSE Activity

The FHFA set 2026 volume caps for Fannie Mae and Freddie Mac at $176 billion combined, a 20% increase from 2025. This expanded capacity signals continued government support for multifamily housing production.

Tighter Bank Underwriting

Regional bank stress in 2023-2024 led to more conservative construction lending. Many banks now cap LTC at 65-70% versus 75-80% pre-2023. This creates opportunities for alternative lenders and HUD financing.

Construction Cost Stabilization

After years of rapid escalation, construction costs have stabilized in most markets. This improves project feasibility and makes underwriting more predictable.

Interest Rate Outlook

With gradual rate declines expected through 2026, floating-rate construction loans become more attractive. However, locking in a 40-year fixed rate through HUD remains compelling for developers with longer holding periods.

Ready to Finance Your Multifamily Construction Project?

Securing a multifamily construction loan requires careful preparation, the right lending partner, and a well-structured capital stack. Whether you are developing a 20-unit workforce housing project or a 200-unit Class A community, understanding your financing options is the first step toward breaking ground.

Key takeaways from this guide:

• HUD 221(d)(4) offers the highest leverage (85-90% LTC) and best long-term rates, but requires 12-18 months to close
• Bank construction loans close faster but typically max out at 70-75% LTC with full recourse
• Developer experience is critical; first-time developers need experienced partners
• Budget realistically for soft costs and contingency
• Plan your permanent financing exit before closing on construction debt

At Clearhouse Lending, we specialize in helping developers navigate the complexities of multifamily construction financing. Our team has closed hundreds of construction loans ranging from $3 million workforce housing projects to $50 million+ luxury developments.

Schedule a consultation to discuss your multifamily construction project and explore which financing program best fits your development timeline, experience level, and return objectives.

Frequently Asked Questions About Multifamily Construction Loans

What is the minimum down payment for a multifamily construction loan?

Down payment requirements vary by lender type. HUD 221(d)(4) loans require as little as 10-15% equity, while traditional bank construction loans typically require 25-35% of total project costs as equity. Private lenders may accept slightly lower equity but charge higher rates.

Can I get a multifamily construction loan with no experience?

First-time developers generally cannot qualify for ground-up construction loans on their own. However, you can overcome this hurdle by partnering with an experienced developer who takes a meaningful role in the project, hiring a construction management firm with a strong track record, or starting with a smaller renovation project to build experience before pursuing ground-up development.

How long does it take to close a multifamily construction loan?

Timeline varies dramatically by loan type. Bank construction loans typically close in 45-90 days from application. HUD 221(d)(4) loans require 12-18 months from application to closing. Private bridge lenders can sometimes close in 2-4 weeks for experienced borrowers with straightforward projects.

What happens if my construction project goes over budget?

Cost overruns are one of the biggest risks in construction. Before closing, lenders require you to set aside contingency reserves (typically 5-10% of hard costs) specifically for this purpose. If overruns exceed your contingency, you will need to contribute additional equity from personal funds, renegotiate with your contractor to reduce scope, seek supplemental financing (often at unfavorable terms), or in worst cases, face potential default.

Can I refinance a construction loan before the project is complete?

Generally, no. Most construction loans cannot be refinanced until the project achieves certificate of occupancy and reaches a stabilization threshold (often 90% occupancy for 90 days). Some lenders offer construction-to-permanent loans that automatically convert without requiring a new closing, which eliminates refinance risk.

What credit score do I need for a multifamily construction loan?

Minimum credit requirements vary: HUD loans typically require 680+ credit scores, bank construction loans look for 680-700+ depending on the institution, and private lenders may accept scores as low as 620 but charge premium rates. Higher credit scores always result in better terms.

Are multifamily construction loans recourse or non-recourse?

HUD 221(d)(4) loans are fully non-recourse, meaning the lender cannot pursue your personal assets if the project fails. Most bank construction loans are full recourse during the construction period, with some offering "burn-off" provisions that convert to non-recourse after stabilization. Private bridge lenders may offer either structure.

What is an interest reserve and why is it required?

An interest reserve is a portion of your loan proceeds set aside to cover monthly interest payments during the construction period when the property generates no rental income. Lenders require this to ensure you can service the debt without relying on external income. The reserve is typically 12-24 months of projected interest, calculated based on an assumed draw schedule.