Commercial mortgage loans are used to finance an array of multifamily properties. Whether an investor wants to borrow money for a five-unit apartment building or for a 50-unit apartment building, access to financing is important. Direct Apartment Lenders helps investors understand the process for securing apartment building loans.

What is an Apartment Loan?

Similar in some ways to a residential home loan, an apartment building loan has many of the same features. Borrowers can select from a variety of fixed-rate mortgages and adjustable-rate mortgage terms. 

As with all mortgage loans, a borrower’s credit is reviewed to understand the likelihood of a timely repayment. This is important because a large percentage of mortgage lenders will commit the principle and interest portion of the borrower’s payment to a pool of mortgage investors.  

Although, the greatest difference between a residential home loan and an apartment building loan is the commercial aspect. 

An apartment lender will highly consider the borrower’s qualification, while primarily focusing on the condition and performance of the underlying asset.

A mortgage lender for a traditional home loan will exclusively focus on the income that the borrower generates. 

Essentially, an apartment loan is used to facilitate the acquisition of a residential dwelling that generates regular income from multiple families.

How Much Do You Need for A Down Payment to Buy an Apartment?

Whenever a buyer is interested in purchasing an expensive car or some type of real estate, she might wonder how much the out-of-pocket investment will be.

An apartment lender understands that everyone who applies for a commercial building loan will have different financial situations. Some borrowers will have excellent credit scores, and a sufficient amount of liquid reserves. 

But, beyond the borrower’s qualifications, the apartment building must also meet the required debt service ratio and successfully clear a variety of property inspections.

Therefore, the consideration for every apartment loan and the down payment for the loan will vary upon the attributes of the property and the borrower’s credit and financial strength.  

Are Apartment Buildings Profitable?

Apartments are built and maintained to provide housing for single residents and for families. Apartment owners are motivated to make a profit from their income-producing properties.

Many investors will attempt to understand a property’s cash flow and its cap rate.

However, with a thorough review of the total income and the expenses that an apartment building has, an investor can estimate the profitability level.

All apartment buildings are not profitable. 

A variety of factors, such as the monthly mortgage payment, taxes, insurance, maintenance, repairs and other expenses must be lower than the monthly rent rolls to realize a profit. 

When an experienced investor is considering a property’s potential, he might envision higher profits than the existing owner receives. 

Opportunities to increase below-market rental rates, performing property upgrades, adding parking garages or dedicated spaces, building an onsite car wash and other ideas might be some of the things that an investor considers prior to purchasing a specific apartment building.    

How Do You Get Approved for Apartment Building Loans?

Ownership of an apartment building could fulfil an investor’s real estate goal.

However, a variety of items must be reviewed prior to signing the mortgage note.

An application for an apartment building loan must be completed. An underwriter will examine the information within the mortgage loan application.

Typically, an initial loan application will be approved with the understanding that certain conditions must be met, or the applicant will receive a loan denial.

So, to get approved for an apartment building loan, an underwriter should be able to check all of the required boxes that are required for funding.

Since the property is of utmost importance, the income that is generated each month, the debt ratio, the value, the condition and the environmental inspections are vital to secure an approval for an apartment building loan.

An underwriter will review the applicant’s credit score and whether he pays his bills on time.     

A mortgage underwriter will focus on the portion of the application that reflects real estate owned. To get approved for an apartment building loan, the borrower should be able to prove that the mortgage loan for every property shown on the application is made on time.

The most recent two-year period will have the most impact toward the lending decision, as a late mortgage payment that was made four or five years ago will have less significance.

Additionally, strong financials can make the difference between an approval and a denial for an apartment loan. 

In most scenarios, a great property that meets a lender’s requirements and a qualified borrower can result in a funded mortgage loan.

Although, every transaction is unique and certain mitigating factors may be acceptable for a commercial mortgage lender.

For instance, an investor who has average credit, significant equity within real properties and superb financial reserves might be approved for an apartment building loan.

Contact Direct Apartment Lenders today for more information about financing a commercial property.