How to Get an Apartment Building Loan

When people need a loan, they often go to the bank that’s familiar to them. For many commercial properties, especially multifamily ones, that means going to the large national banks.


But those lenders aren’t familiar with apartment buildings, and they can’t offer the same attractive financing options for multifamily properties that you might get on a duplex or triplex.

Freddie Mac

Freddie Mac and Fannie Mae are hugely influential government-sponsored enterprises that purchase mortgage loans from banks and other lenders. Then they package those loans together as securities and sell them on the secondary market. The money that they generate from these sales can help keep mortgage markets stable and affordable. Both institutions also provide financing for multifamily properties.

Unlike Fannie Mae, Freddie Mac focuses more on apartment buildings with five or more units. Its loan programs are tailored to meet the needs of the multifamily industry and include options for affordable housing, senior living and student housing properties. The company also has a program for investors who utilize low-income housing tax credits.

As a publicly-owned corporation, Freddie Mac’s mission is to maintain stability in the multifamily lending sector. It also seeks to promote homeownership and community development. Its multifamily mortgage loan programs include those for new construction, purchases, refinances and substantial rehabilitations. They offer competitive rates for 5-plus unit properties and are non-recourse.

Investors who are interested in renovating their multifamily property can take advantage of Freddie Mac’s Moderate Rehab loan program. This program offers a flexible terms and standard non-recourse execution, making it an ideal option for both new and existing multifamily investment property. These loans can be combined with 10-year Freddie Mac Targeted Affordable Housing (TAH) Loans to achieve higher LTVs and lower DSCRs.

Government Programs

The federal government offers a variety of programs that assist with the financing and development of affordable housing. These include low-income rental assistance, the Section 8 voucher program, and the HOME Investment Partnerships Program. Other state and local governments also offer a variety of incentives for developers and investors to build affordable housing. These include tax increment financing, as well as loan and grant programs that provide funding for a range of construction costs.

The CityFHEPS (City Family Housing Eligible Renter Subsidy) provides a rent subsidy to households with incomes below a certain threshold. The subsidy covers a portion of an individual’s monthly housing costs, up to a maximum amount per household that varies by family size and location.

Community Development Block Grants are federal grants awarded to communities for neighborhood redevelopment and economic development activities. CDBG grants can be used to assist with the cost of land acquisition, demolition, and environmental cleanup, as well as construction or renovation of buildings.

New York City’s Preservation Loan Program provided loans to owners of Mitchell-Lama apartments to help with the cost of repairs and rehabilitation. The program was a component of the MLRP Mortgage Restructure Program.

The Neighborhood Builders program provides funding to support the development of one-, two-, and three-family homes, cooperatives, and condominiums affordable to low-, middle-, and moderate-income households. The program is administered by the New York City Housing Development Corporation.

Private Lenders

Private lenders often offer apartment building loans to property owners that can’t qualify for a government or institutional loan. Private loan programs typically don’t require as much cash upfront or reserve requirements and may be more flexible in their underwriting standards. They are also more likely to look at a borrower’s individual financial situation rather than apply a general algorithm or formula.

Many private lending companies are located online and use real estate investor meetups to network with investors and commercial property owner-borrowers. Some offer online applications, but it is best to connect with a private lender in person so you can present your case personally.

Some private lenders offer bridge loans for apartment buildings that need renovation or are vacant. They are usually shorter-term and can have higher interest rates than other financing sources. Depending on the lender, they may have a prepayment penalty if you refinance the property or pay off the loan early.

Other types of private loans are mezzanine loans. These are junior to the primary multifamily debt and are secured by either the apartment project’s equity or private preferred capital. They are used when you need more leverage than is available with the primary non-recourse apartment mortgage loan or for cash out refinancing. This type of financing requires a significant level of experience in apartment investment.