Last updated: October 2026
Apartment building financing comes from five main sources: banks and credit unions, Fannie Mae and Freddie Mac (agency loans), HUD/FHA-insured loans, life insurance companies and CMBS lenders, and bridge or private lenders. Buildings with 5 or more units are financed as commercial real estate, so lenders size the loan mainly on the property's net operating income, not your personal income. To build an apartment complex, developers usually combine a construction loan from a bank or a HUD 221(d)(4) loan with their own equity, then refinance into permanent financing once the building is leased up.
Apartment building loan options compared
| Source | Best for | Key features | Watch for |
|---|---|---|---|
| Banks and credit unions | Local investors, smaller buildings, construction | Relationship-based; flexible on property condition; offer construction loans | Shorter terms (often 5 to 10 years) with balloon payments; usually recourse |
| Fannie Mae and Freddie Mac (agency) | Stabilized buildings with solid occupancy | Long fixed-rate terms, often non-recourse; Fannie Mae's small loan program goes up to $9 million | Prepayment penalties; stricter property and sponsor review |
| HUD/FHA 223(f) | Buying or refinancing existing buildings | Terms up to 35 years, fully amortizing; 5+ units | Long processing times; HUD requirements |
| HUD/FHA 221(d)(4) | New construction or substantial rehab | Construction and permanent loan in one; up to 40 years; 5+ units | Long approval process; best suited to larger projects |
| Life insurance companies | Low-leverage, high-quality properties | Often the lowest rates for conservative loans | Selective on location, size and sponsor |
| CMBS (conduit) loans | Larger stabilized properties | Non-recourse, fixed rate | Rigid servicing; costly prepayment terms |
| Bridge and private lenders | Value-add, lease-up or quick closings | Fast and flexible on property condition | Higher rates and fees; short terms that must be refinanced |
Agency lending is a big part of the market: the Federal Housing Finance Agency set Fannie Mae's and Freddie Mac's 2026 multifamily loan purchase caps at $88 billion each, up from $73 billion in 2025, with workforce housing loans excluded from the caps. For a lender-by-lender view, see our list of the best commercial real estate lenders.
What about SBA loans?
SBA 7(a) and 504 loans cannot be used to buy or build an apartment building held as a rental investment. The SBA treats landlords that do not occupy the property as passive businesses, and the 504 program specifically excludes investment in rental real estate.
2 to 4 units vs. 5 or more
Buildings with 2 to 4 units are financed with residential mortgages (conventional, FHA, VA) or investor "DSCR loans." Five units and up moves you into commercial lending, where the property's income drives the loan.
Funding to build an apartment complex
New construction is financed with a capital stack: several layers of money with different risk and cost.
- Senior construction loan from a bank, or a HUD 221(d)(4) loan. Funds are released in draws as work is completed and inspected, and you usually pay interest only on what has been drawn.
- Gap financing (optional): mezzanine debt or preferred equity to fill part of the space between the senior loan and your equity, at a higher cost.
- Sponsor equity: your cash, land value and investor capital.
- Affordable housing sources for qualifying projects: low-income housing tax credits, state and local programs and tax-exempt bonds.
- Permanent "take-out" loan: once the building is complete and leased up, an agency, HUD, bank or life company loan repays the construction lender. A HUD 221(d)(4) loan already includes the permanent phase.
How much equity will you need? Federal banking regulators set supervisory loan-to-value limits that banks' internal policies should not exceed: 65% for raw land, 75% for land development and 80% for multifamily construction. Banks often lend less than those ceilings and also cap the loan as a share of total cost (loan-to-cost). Plan for meaningful equity, even with strong pre-leasing.
What construction lenders look for:
- Experience: a track record building or operating similar projects, or a team (general contractor, property manager) that has one
- Full plans, permits or a clear path to them, and a fixed-price or guaranteed-maximum-price construction contract
- A detailed budget with hard costs, soft costs, interest reserve and contingency
- An appraisal showing "as-complete" and "as-stabilized" value, plus a market study supporting rents and lease-up time
- Sponsor liquidity and net worth, and usually completion and repayment guarantees on bank construction loans
- A realistic exit: proof the stabilized income can support a permanent loan
How lenders size an apartment loan
Lenders usually calculate the loan several ways and offer the lowest result.
- Debt service coverage ratio (DSCR): net operating income ÷ annual debt payments. Fannie Mae's small loan program, for example, lists a 1.25 minimum. Learn more in what is DSCR.
- Loan-to-value (LTV): loan ÷ appraised value. Agency small loans go up to 80%.
- Loan-to-cost (LTC): used for construction and heavy renovation.
- Debt yield: NOI ÷ loan amount, used by some CMBS and bridge lenders.
Worked example: buying a stabilized building
| Item | Amount |
|---|---|
| Purchase price | $2,400,000 |
| Net operating income (rent minus operating expenses, before debt) | $180,000 a year |
| Maximum annual debt service at a 1.25 DSCR ($180,000 ÷ 1.25) | $144,000 |
| Loan that payment supports (assumed 7.00% rate, 30-year amortization) | About $1,800,000 |
| Loan allowed at 75% LTV | $1,800,000 |
| Down payment needed, before closing costs and reserves | About $600,000 |
Here both tests give about the same answer. If NOI were lower, DSCR would cap the loan below 75% LTV, and the down payment would rise. The rate is an assumption for illustration; test your own numbers with our commercial real estate loan payment calculator.
Documents to prepare
- Trailing 12-month operating statement and current rent roll (for existing buildings)
- Purchase contract, or construction budget, plans and contractor agreement
- Property tax bills, insurance quotes and utility history
- Personal financial statement, real estate schedule and liquidity verification for each sponsor
- Entity documents for the borrowing LLC or partnership
- Business plan for value-add or construction: renovation scope, target rents and timeline
Step by step
- Define the strategy: stabilized hold, value-add or ground-up construction. It decides which lenders fit.
- Underwrite the deal yourself with realistic rents, expenses, vacancy and capital reserves.
- Match the loan to the plan. Value-add buyers often start with a commercial bridge loan and later refinance; see commercial real estate refinance loans.
- Request term sheets from more than one lender type and compare rate, leverage, recourse, prepayment terms and fees.
- Complete third-party reports: appraisal, environmental report and property condition report.
- Close with reserves for repairs, taxes and insurance, plus your own cushion.
Frequently asked questions
How much down payment do I need for an apartment building?
It depends on the lender and the property. Agency small loans allow up to 80% LTV, which means at least 20% down; many banks and bridge lenders lend less, and DSCR may cap the loan further. Construction usually requires more equity than buying a stabilized building.
What matters more, my income or the property's income?
For 5+ unit buildings, the property's income. Lenders still review your credit, liquidity, net worth and experience, especially for recourse and construction loans.
What is the difference between recourse and non-recourse?
With recourse, you are personally liable if the loan defaults. Non-recourse loans, common with agency, HUD and CMBS lenders, limit the lender to the property, except for "bad boy" carve-outs such as fraud or unauthorized transfers.
How long does apartment financing take?
Bank and bridge loans can close in weeks once reports are complete. Agency loans often take longer, and HUD loans take the longest, especially 221(d)(4) construction loans.
Can a first-time investor get an apartment loan?
Yes, more easily on a small, stabilized building with a bank or agency small-loan lender. Partnering with an experienced operator or professional property manager helps, and construction lenders usually expect prior experience.
Comparing apartment financing options
FSE (Funding Solution Experts) is an independent commercial finance brokerage working with 50+ lending partners, including real estate-backed lenders. We can help you compare commercial real estate and bridge options alongside working capital for your operating business. Our application asks for at least one year in business and $10,000+ in monthly revenue. Approval and terms depend on each lender. If you prefer a dedicated adviser for larger multifamily deals, see our guide to choosing a commercial real estate loan broker. Start a no-obligation application.
Sources
- FHFA, 2026 multifamily loan purchase caps for Fannie Mae and Freddie Mac
- HUD, Descriptions of multifamily programs (Sections 223(f) and 221(d)(4))
- Fannie Mae Multifamily, Small mortgage loan program term sheet (up to $9 million, 80% LTV, 1.25 DSCR)
- eCFR, 12 CFR Part 365, Appendix A: Interagency Guidelines for Real Estate Lending Policies (supervisory loan-to-value limits)
- U.S. Small Business Administration, 504 loans (ineligible uses) and 13 CFR 120.110 (ineligible passive businesses)
Program details were checked in October 2026. Agency and HUD terms change; confirm current terms with a lender.