Facts About Getting Small Apartment Loans

Most real estate investors will commonly seek out loans when it comes to expanding their business. This is no different when someone is looking to buy a small apartment building. If someone is seeking to get a small apartment loan to expand their rental empire then they may wonder what requirements are necessary to qualify. Here we’ll take a look at facts about getting small apartment loans.

Understanding The Three Typical Kinds Of Small Apartment Loans Available

When it comes to small apartment loans there are generally 3 types that are available. These include a short-term loan that might be used just for the initial purchase or for doing some needed renovations of the building. This type of loan will commonly have rates that range anywhere from 7 to 14%. An average investor will buy a building with 5 units or more to increase their overall monthly cash flow. This type of investment is also good for building equity over time, earning additional capital gains, and increasing their overall leverage.

Anyone who is interested in getting small apartment loans will want to check the availability of both short and long-term options to determine which would be better for their particular situation. Loans for this type of apartment building can range anywhere from a few hundred thousand up to 3 million or more. The search for an available loan can begin online.

  1. Small Apartment Loans Backed By The Government

Just as the government has programs to back single-family home loans it also has programs through the same agencies such as Freddie Mac and Fannie Mae that can back loans against apartment purchases. To be approved for one of these loans will generally require a purchase that is fairly substantial. In most situations, the loans are a low of $750,000 up to over 6 million dollars. Often these loans will allow the buyer to borrow a larger portion of the overall purchase price than other types of loans would allow for. In some cases, the borrower may be able to get up to 87% of the total purchase price as a loan.

When it comes to an investor building a portfolio of small apartment buildings it is important for them to be able to get loans for those purchases. For most investors, it is not possible or even good business to put their own personal money into the purchase. For that reason, they will usually seek out available loans to build up their portfolio of apartment buildings.

small apartment loans

What Are The Specific Details Of Getting A Loan Through Freddie Mac Or Fannie Mae?

Fannie Mae has loans for as little as $750,000 up to about 5 million dollars. Freddie Mac has loans that start around $1,000,000 up to about 6 million dollars. Both of these agencies will give a loan that can amount up to 80% of the total purchase price. If someone qualifies under FHA they can get a loan for up to 87% of the purchase price.

These loans can typically come with interest rates of 4 1/2 to 6% with closing costs as low as 2%. Mortgage insurance premiums can be as little as 1% and some experts suggest that legal fees can run as much as $10,000 or more. The loan terms can be between 5 years to 30 years and the funds can typically be available in two to four months.

What Type Of Qualifications Are Required To Get A Loan Backed By The Government?

The government agencies that are available to back a loan of this type require a credit score between 650 to 680 depending on the agency. They expect liquidity of 9 + months and they want an occupancy rate that ranges between 85 to 95%. They typically want stable tenants with three to six months of stability showing.

A variety of approved lenders are available to discuss government-backed loans of this type with investors. These lenders could be credit unions, banks, and even companies that specialize in real estate financing. One of the most well-known lenders is the Commercial Real Estate Finance Company Of America.

  1. Bank Balance Sheet Loan

This type of loan is created through a traditional bank and it’s there to sit on their balance sheet. This type of loan is not one that is backed by a federal agency. The bank takes on the responsibility of managing the loan and its entire process and the criteria they use will be based on their own requirements.

Some investors will be very hands-on and they will manage and run their investments and tenants. Other investors focus on the business of finding and investing in great opportunities and they are much more hands-off. This type of investor who is essentially an absentee apartment owner may want to consider this type of loan.

A number of the loans that are available to apartment investors require that they live in and spend the majority of their time in the communities where the apartment buildings are owned. This type of loan does not have any such requirement. For that reason, it is a great choice for someone who invests in apartment buildings in different cities or states around the country and is largely an absentee apartment owner.

Many of the traditional loans that are available whether they are backed by the government or not will not be available to an absentee apartment owner. The majority of them want to know that the owner is actively involved to ensure its success and that the borrower lives in the community. For that reason, those other loans are not available but this one does not have that consideration and therefore is a great choice for someone who will not live in the community.

What Are The Terms Of This Type Of Loan?

Interest rates on this type of loan for a qualified borrower will typically range from 4 1/2 to 7%. Origination fees on this type of loan can typically be around 1% and closing cost between 2 to 5%. Commonly prepayment penalties will range around 1% and the rates may adjust every five or ten years. If the loan comes with a period of time that has a fixed rate then at the end of that time the interest might adjust as much as twice a year. Often the interest rate will have an overall cap and commonly this is 6%.

This type of loan can usually be taken for a term of 15 to 30 years and funding can be made available within two to three months. Other loans for typical residential properties can be made available in less time but this type of loan will usually take up to 90 days. The borrower will usually need a credit score of at least 640 and they’ll need to be able to demonstrate that they can maintain 90% occupancy and a stability of three months.

These type of loans are found at usual major banks. They are available all over the country. It is best to seek out this type of loan from a bank that you already have a relationship with and do business with.

  1. Short Term Loan Options

When it comes to borrowing money for apartment buildings this is the least common type of property loan. The reason for this is the fact that investors of apartment buildings usually are purchasing them as a long-term investment. There are some reasons, however, that an investor might want a short-term loan to purchase or renovate an apartment building.

Some of the most common reasons for this type of loan might be to flip a property or to do some necessary renovations on it. There are even some situations where renovating the building within make it more suitable for a long-term loan. In that case, the investor might choose to get a short-term loan to do the necessary improvements and then seek out a better long-term loan on the improved property.

Sometimes an investor might seek out a loan which is commonly known as a hard money loan for one of these short-term needs and this is most often done when an investor is planning to quickly flip the property for a profit. They may want to improve it to make it look it’s best and then offer it to someone they already have lined up as a buyer. As would be expected this type of loan has a bit more risk both to the borrower and to the lender.

What Are The Typical Requirements Of This Loan?

Lenders will determine the specific minimum and maximum loan amounts but on average a loan of this type might be a low of $100,000 up to an amount that is determined by the lender. Down payments for small apartment loans are usually required to be anywhere from 10% up to 25%. Because the loan is considered riskier, the interest rate ranges anywhere from around 8% up to around 14%. Exit fees can be 1% and prepayment fees can also be about 1%.

Each of these loans can be a great choice under the right circumstances. They are all available to qualified borrowers and they are commonly found throughout the country. Very often a borrower can start their search online or they can go directly to a lender with whom they already have a relationship with.

Neal Business Funding can get you the small apartment loans your investing business needs. Call now to apply or fill out the contact form at nealfunding.com

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