To get a commercial loan for an apartment building, a borrower typically provides the property’s rent roll, operating statements and purchase or refinance details, and the lender reviews income, occupancy and borrower experience. This guide walks through the steps and the documents lenders ask for.
A commercial apartment loan is a loan used to buy or refinance a multifamily building, and unlike a conventional mortgage, its rates, terms, fees and structure vary from lender to lender.
What are the steps to get an apartment building loan?
- Prepare the important facts about your property in advance, including whether it is rental only or mixed use and how fully it is occupied.
- Decide how the property will be owned. Lenders usually lend to a business entity, such as a corporation, limited partnership or LLC set up to own the building, rather than to an individual.
- Gather the documents the lender will ask for, listed below.
- Let the lender review you, the property and its income.
- Review the loan terms before you sign, including fees, prepayment penalties, whether the loan can be assumed and whether it is recourse or non-recourse.
Holding the property in an LLC keeps the liabilities of your other properties from spilling into the apartment building. If the entity is new and has no credit history, the lender uses your credit history and your partners’, and lists you as guarantors on the loan.
What documents do lenders ask for?
- Pictures of the apartment building
- A map showing the location
- Income tax returns and business tax returns
- Bank statements
- A rent roll, with current and expected rents
- Documentation of the collateral
- How the property compares with similar nearby properties
What do lenders look at in an apartment building?
The lender looks at your experience as a property manager and at collecting rent, whether you can handle a project of that size, your income and your credit score. It also looks at the property’s net operating income, which for an apartment building is the net rent collected minus the building’s expenses, and at how your cash flow compares with the loan payments.
The lender also checks the loan to value ratio, which is the loan amount measured against the value of the property. The use of the building changes the terms too: a rental only building and a mixed use building with rental and commercial space are financed differently.
A partially occupied or vacant building can still be financed, but the loan will likely be short term with a variable interest rate, on the expectation that the property will stabilize as it finds tenants. Once the investment is stable, the loan can be replaced with a permanent one. Rates vary by lender, property and loan terms. Daily benchmark rates are on our commercial mortgage rates page.
For the factors that move a loan’s rate, read what determines your commercial mortgage rate.
Frequently asked questions
What documents do lenders ask for on an apartment building loan?
Most lenders ask for pictures of the property, a map showing its location, income tax returns, business tax returns, bank statements, a rent roll with current and expected rents, documentation of the collateral, and a comparison with similar nearby properties. It helps to prepare these facts about your property in advance.
Can I finance a partially occupied apartment building?
Yes. A partially occupied or vacant building can be financed, but the loan will likely be short term with a variable interest rate, on the expectation that the property will stabilize as it finds tenants. Once you show the investment is stable, the loan can be replaced with a permanent one.
Should the apartment building be owned in an LLC?
Lenders usually lend to a business entity rather than an individual, and holding the property in an LLC keeps the liabilities of your other properties from spilling into it. If the entity is new and has no credit history, the lender uses your credit history and your partners’, and lists you as guarantors.
What is the difference between a recourse and a non-recourse loan?
On a recourse loan, the lender can hold the guarantor responsible if the loan defaults. On a non-recourse loan, the property is the lender’s only security, so if the loan defaults the property can be sold, but the lender has no claim on the borrower or anyone else.
To find out more about our apartment building loan programs, call us at 866-647-1650 or fill out the form on the Contact us page.
