Mortgage loans are available for first time apartment buyers. Knowing some of the items that an underwriter will check for is important. Direct Apartment Lenders invites you to review what is needed to get a loan for an apartment building.

Buying an Apartment Building

The acquisition of a multifamily property could provide some steady cash flow for a new investor and for a seasoned professional.

If you own your primary residence and other income-producing real estate, some of the steps that you took to reach the closing table will resemble a few of the requirements that you will need to get an apartment loan.

Prior to financing an apartment complex or applying for a loan to buy an apartment building, many investors will purchase a single unit property, a duplex or a triplex to obtain some real estate management experience.    

Some items to consider when buying an apartment building

Apartment Class - the type of apartment, it’s age and location.

Syndication - buying an apartment with a group of investors 

Exit Strategy - Will you buy and hold the building or fix and flip the property?

Getting a Loan for an Apartment Building

Securing a loan that meets your goals for buying an apartment building could be a significant step toward passive income via monthly rental income and property appreciation that increases your wealth.

Liquid Assets

 A considerable down payment is generally needed to obtain financing for an apartment building. Depending upon a variety of factors, you may need between 20 percent and 40 percent toward a down payment.

Therefore, an apartment building with a purchase price of $500,000 might require a down payment that ranges between $100,000 and $200,000.

Liquid assets refer to financial instruments that an investor can access expeditiously. 

For instance, a borrower may be able to sell certain stocks or mutual funds within the time frame that is needed to close the loan. An underwriter will also notice the liquidity that an investor has for financial reserves after a loan has closed. 

Having financial reserves that could serve as a cushion for an unforeseen hardship may be viewed as a compensating factor for deals that are outside of certain underwriting guidelines. 

Whereas, an art collection, antiques or other valuables that might take longer to sell are not counted toward a borrower’s liquid assets.

Above Average Credit Score 

Nowadays, it seems as if a credit score is required to finance just about everything.

While that three-digit number does not guarantee anything, it provides an apartment lender with an indication of the way that you manage your finances. And, as the world revolves, there are a myriad of reasons that a borrower might point toward to explain how certain delinquencies occurred.

However, if the stars are aligned, because you have managed your finances very well and you have an above average credit score, at this moment in time, you might qualify for a commercial mortgage loan.

A perfect credit score is not required to get an apartment building loan. If your credit score is above 660 points, you may have met the minimum requirements for a variety of apartment financing programs. Although, if your credit score is a lot higher, your opportunity for an apartment building loan approval should increase.

Keep this in mind, apartment lenders will review your credit, but most of the underwriting challenges revolve around the performance of the commercial asset.

Meaning, the potential for you to fall behind on your personal credit obligations is a possibility. But, a property that has great cash flow should continue to do so, even if your situation changes.

The exact opposite is true for buying an owner-occupied home to live in. Whereas, the mortgage lender will only look at your ability to repay the debt, as the property is a non-performing asset.

Hence, you should check your credit report prior to calling a commercial mortgage lender. Check for any inaccuracies or derogatory issues that you can discuss upfront with an apartment lender.      

When a lender reviews an investor’s liquid assets, cash, bank funds, stocks, bonds, retirement funds and an insurance policy with a cash value are the most common items that are considered. 

Money for Property Reports

For you and the lender to get a better understanding of the market value as well as the overall condition of an apartment building, several reports from licensed professionals are required. 

In most cases, you will need to pay upfront for an environmental report, an appraisal, due a diligence report and in certain areas, a flood report.

Summary  

After applying for a loan to get an apartment building, you will also need to obtain a commercial insurance policy before the loan is funded. Speaking with a loan officer is the best way to determine the specific items that you will need for an apartment loan.

Contact Direct Apartment Lenders today for more information about commercial mortgage loans.