An Introduction to Multifamily Apartment Financing



It may be the case that, in the past, you have financed a detached house or a one-to-four unit property. This form of financing is different from the kind involved in multifamily apartments. The process of obtaining a loan for an apartment building with five or more dwellings has a different underwriting process and higher qualifications. The following is a short introduction to this process.


When financing multifamily apartments, one of the first things to consider is whether or not you qualify for a loan of this kind. In order to make such a determination, the lender will do various background checks. They will want to know if you have managed a property before and if you have experience collecting rent.

As a matter of course, they will run a credit check in addition to unearthing your tax forms. The lender is interested in whether or not you will be able to pay off your debt, so they will calculate at least three basic figures: net income produced by the property, a determination of the cash flow relative to the debt, and the loan to value (LTV) ratio, which measures the value of the property in relation to the amount of the loan.

Loan Typology

In addition to determining your qualifications, it is important to research the different types of loans available to you. There are specific kinds of loans designed to fit various needs and you should be sure to study up on these options. However, more generally, there are two fundamental sorts of loans: short term (five to 10 years) and long term (25 to 35 years). If you end up choosing a short term loan, it’s important to know that you are able to refinance when the loan period ends. Be aware that refinancing usually entails a change in rates and added fees.

Detailed Documentation

In the event that you decide to apply for a loan, the lender will want a detailed list of documents, including a photograph of the building, floor plans of each unit, names of involved parties, summary of funds, and a map showing the location of competing properties. From this list, the lender will get a sense of all the relevant factors that go into deciding the terms of the loan or whether a loan is given at all.

Financing multifamily apartments can be a lot of work, but in the end, it can be worth it, as you might be able to recoup your funds. Just be sure to be diligent in your preparation so that you can avoid any unnecessary snags in the process.