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Loan programs, terms, and qualifications for purchasing Multifamily Apartments


Loan programs, terms, and qualifications for purchasing Multifamily Apartments

Apartment loans can be short-or long loans that fund the purchase and/or renovation of an apartment building, with rates as low as 3% and as high as 11%. Investors can utilize various financing programs to acquire apartment buildings. Buyers typically purchase these properties as investments in order to generate cash flow, build equity, increase leverage or earn capital gains.

Fannie Mae, Freddie Mac, and FHA are government backed loan programs that offer the lowest rates, most favorable terms, and are non-recourse.

Both Fannie Mae and Freddie Mac offer loan-to-values of up to 80%, as well as several fixed rate options. The most popular are 3,5,7 or 10-year fixed rate loans that are amortized over a 30-year term, in order to decrease the principal and interest payments to generate increased cash flows. The downside for investors is that they have to refinance a balloon payment amount at the end of the fixed rate term. Investors may also have to refinance at a much higher interest rate, which will in turn decrease their cash flows and the return on their investment.

Both Fannie Mae and Freddie Mac Apartment Loans require approximately 85% to 90% occupancy and liquidity of at least 9 months of the project’s monthly payments. The minimum debt service coverage needs to be 1.25x or greater. In addition to these qualifications, these government insured apartment building loans require that the net worth of the principals in the transaction exceed the loan amount. In order to meet the definition of an apartment building, the project must contain five or more units.

There are many factors to consider when choosing between Fannie Mae, Freddie Mac and FHA lending programs. If you are trying to close on a purchase quickly, Fannie Mae and Freddie Mac loans can be completed within 45 to 90 days, depending upon the complexity of the transaction. FHA lending programs take between 4 to 6 months to close, but they are a better option for investors and borrowers who are looking to keep their projects for a long period of time. The FHA 223(f) allows up to a 35-year term, with a fixed rate, fully amortized assumable loan. With Fannie Mae and Freddie Mac, the terms and leverage fluctuate based on market strength and asset class. The property conditions for Fannie Mae and Freddie Mac are not as highly scrutinized as they are for FHA. FHA loan programs allow up to 90% Loan-To-Value for affordable and 85% Loan-To-Value for market rate apartment loans. The 223(f) program allows a maximum loan term up to 35 years fully amortizing, not to exceed 75% of the remaining economic life.

Below is a chart to illustrate some notable similarities and comparisons


FHA 223(f)

Fannie Mae and Freddie Mac (Agency)

Loan Term

up to 35 years

5-30 years

Minimum DSCR

1.176x (1.11x for affordable)


Maximum LTV

up to 90% affordable, 85% market rate

up to 80%

Fixed/Adjustable Rate


Fixed and Adjustable

Occupancy Requirements

85% occupancy for last 6 months

85% for last 90 days




Prepayment Penalty

Negotiable, standard is 2 year lock out followed by declining 8,7,6,5,4,3,2,1

1-2-year lockout Yield Maintenance

Execution time

4 to 6 months

2 to 3 months


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