4 of the Best Options for Securing Apartment Building Financing
There are four main options you can use to finance your property. The right form of apartment building financing will depend on your unique situation, but it’s best to consider how more than one of the following could form the perfect solution.
1. Find the Best Possible Apartment Building
This probably seems like an obvious first step, but it’s far more important than most people think.
First-time investors often assume that apartment building financing is similar to financing the purchase of a home – it just costs more.
However, when buying an apartment building, it goes without saying that you’re doing so with commercial intent.
As such, lenders won’t care nearly as much about your own personal finances. It certainly doesn’t hurt to get them all in order, but lenders will be far more interested in the potential of the apartment building itself.
You could have an 850 credit score, but if a lender doesn’t think the apartment building you want will earn enough in rent to pay them back, don’t expect a loan.
So, take your time considering all of your options. Don’t jump on an opportunity just because it’s available or you may struggle to actually purchase it.
2. Talk with Smaller Banks
Most people don’t think twice about going to large national banks when they need a loan. Whether it’s a car loan, personal loan, mortgage, or something else, it often seems like common sense to simply visit the lender whose commercials you always see on TV.
This is often true when you have a straightforward, simple need, like you’re looking for a mortgage to purchase your primary residence. Those types of mortgages play a central role in these larger institutions’ business plans.
Generally, these banks won’t be quite as familiar with apartment building financing. That’s not to say they won’t ever be an option, but you shouldn’t rush to accept their offer when a smaller bank or mortgage lender may be better able to accommodate your apartment building financing needs.
3. Consider a Government-Backed Loan
The government offers a number of mortgages that can help you purchase a multifamily complex. There are options sponsored by FNMA, FHLMC, and FHA for two-to-four-unit properties and others for buildings with five or more.
Just like with large commercial banks, it’s worth checking to see if any of these programs can help you finance your purchase. However, just like with large commercial banks, it’s fairly unlikely any of these government programs will be the source of your apartment building financing.
For one thing, these programs favor borrowers who want to live in the building and rent out the other units. If that’s not what you had in mind, you may struggle to qualify.
In both cases, the underwriting process is usually a slow one. You could easily wait an entire year before you receive your loan.
Still, the reason it’s one of the best options for apartment building financing is because, if you do qualify, the terms can be amazing. For example, the FHA offers terms like 35-year amortization
- 95% refinancing
- Fixed rates
So, while you probably shouldn’t get your hopes up, it’s worth looking into these programs.
3. Ask About Seller Financing
Seller financing has grown in popularity among homebuyers since credit tightened following the Great Recession. However, this option has always been a common one among those who buy and sell apartments.
In short, the way it works is that the person or company selling the apartment building becomes the lender. They’re essentially giving you the money you need to buy their building. Then, you pay them back following the terms outlined in a promissory note. It’s just like a normal mortgage, except the seller is the one taking your mortgage payments.
The great thing about seller financing is that it usually means much better terms because the seller is willing to settle for less than a traditional bank would offer. They eventually get the money for their entire building, plus they earn interest along the way.
4. Apply for a Blanket Loan
A blanket loan is a nonconforming mortgage that, among other things, can be used to buy a multifamily property. There’s one version for properties of five units or fewer and one for buildings with more.
The terms for these mortgages can be for anywhere between 3 and 30 years. Depending on the lender, they can even have an LTV as high as 97% with minimum loan amounts sitting at about $100,000.
This type of apartment building financing is growing in popularity for a number of reasons, not the least of which is simply its extremely favorable terms. Lenders that offer blanket loans tend to be much more familiar with commercial investors, too, which makes for a much quicker process (definitely not a year).
Furthermore, this is probably the only option for apartment building financing if you already have an impressive portfolio. Most traditional lenders simply aren’t interested in offering a loan to someone who already has multiple mortgages. This is true for people who buy rental homes, so you can imagine how much tougher it is for the much larger loans required to purchase apartment buildings.
Need Help with Apartment Building Financing?
Hopefully, the information above has helped you better understand all of your options for apartment building financing.
If you think that a blanket loan may be your best solution, we can definitely help. At Rental Home Financing, we actually specialize in offering blanket loans to investors who want to add more than one property to their already robust portfolio.
Start your loan application process with us today and we’ll let you know if you qualify ASAP, so you don’t waste any time.