Apartment Building Loans (5+ Units) Apartment Building Loans (5+ Units)

By Multi-Family USA Editorial Team · Reviewed by Scott Dillingham · Published 2026-05-24 · Updated 2026-10-07 · 17 min read

What is an apartment building loan?

An apartment building loan is commercial debt on a property with five or more residential units. It can finance a 5-unit walk-up or a 200-unit garden complex. The lender looks at the building first and the borrower second: how much net operating income (NOI) the property produces, how comfortably that income covers the payment, and how much of the value the loan represents. That is a different world from the 1-4 unit residential loans that run on personal income and credit scores.

Once you know the loan options, the underwriting side is covered in multifamily underwriting basics. To compare lender types side by side, see our best multifamily lenders hub. Multi-Family USA is an independent editorial and matching resource; you can read about the team and how we work. Owners who already hold agency debt may also look at a supplemental loan.

This guide walks a buyer from the first 5-unit deal to a 200-unit one. It explains how lenders size a loan, what each program does and who it fits, what you will put down, how long it takes, what the lender will ask for, and a worked example you can copy into your own numbers. Multi-Family USA is a lender-matching service operated by LendCity America. We do not originate loans, so everything below is written to help you decide, not to sell you a product.

5 units to 200 units: what changes as you scale

The rules do not change at one dramatic line. They shift gradually.

Small deals are not simpler, just different. A 6-unit building and a 120-unit building both need an appraisal, an environmental review and a lender who likes the numbers. The 6-unit building has fewer lenders willing to look at it, and the 120-unit building has more diligence. Read five-plus unit commercial financing basics if you are moving up from duplexes and fourplexes.

How lenders size an apartment building loan

Every lender runs the same three tests. The loan you receive is the smallest number any of them produces.

1. Debt service coverage ratio (DSCR). DSCR is NOI divided by annual debt service (principal and interest). Fannie Mae’s conventional multifamily term sheet lists a minimum DSCR of 1.25x. That means the property must produce $1.25 of NOI for every $1.00 of loan payments. Lenders also test the payment at their own underwriting rate and amortization, which may be higher or longer than the note rate. Use the commercial DSCR calculator to see yours, and read commercial DSCR explained for the details.

2. Loan-to-value (LTV). LTV is the loan divided by the appraised value. The same Fannie Mae term sheet lists a maximum of 80 percent LTV for conventional properties. HUD publishes its own limits: for the Section 223(f) purchase and refinance program, HUD Mortgagee Letter 2025-03 sets 87 percent LTV at a 1.15x DSCR for market-rate projects and 90 percent at 1.11x for affordable and heavily rent-assisted housing. Banks and bridge lenders commonly sit lower. Treat those figures as ceilings, not offers.

3. Debt yield. Debt yield is NOI divided by the loan amount. It ignores interest rates and amortization, which is why CMBS lenders and many debt funds lean on it. A 9 percent debt yield on a $6 million loan means $540,000 of NOI. Debt yield minimums vary by lender and market, so ask each one for its own. The debt yield calculator runs it both ways, and the debt yield and LTV framework explains how the three tests interact.

Underwritten NOI is not your NOI. Lenders start from your trailing 12 months (T-12) and rent roll, then adjust. They typically substitute a market vacancy factor, add a management fee even if you self-manage, normalize repairs and replacement reserves, and reset taxes and insurance. The result is often lower than the number on your pro forma. Multifamily NOI normalization shows the usual adjustments, and the cap rate and NOI calculator lets you test them before a lender does. To see all three tests at once, use the loan sizing calculator, or try the multifamily mortgage calculator for payment and amortization.

Every apartment loan program, in one paragraph each

Agency loans: Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac buy apartment loans from approved lenders and package them for investors. Fannie Mae’s conventional term sheet describes first-lien permanent financing for existing, stabilized properties with at least five units: terms of 5 to 30 years, amortization up to 30 years, fixed or variable rates, and a stabilized occupancy of typically 90 percent for 90 days before funding. Prepayment is yield maintenance on fixed-rate loans and a declining premium on variable-rate loans. Non-recourse execution is available for most loans above $750,000, with carve-outs for bad acts, and loans are typically assumable with lender approval. Appraisal, Phase I environmental and property condition reports are standard.

Smaller buildings have their own lanes. Fannie Mae’s Multifamily Guide devotes a chapter to Small Mortgage Loans. In April 2026 Freddie Mac announced an integrated Optigo Conventional Small product under its core conventional platform, a fixed-rate product for loans from $2 million to $10 million, aimed at smaller workforce housing properties. Agency money is often the cheapest and longest-dated permanent debt available for a stabilized building. It is less forgiving on occupancy, condition and sponsor experience. Details: agency stabilized loans and Freddie Mac Optigo.

One market note. FHFA sets annual volume caps on the two agencies, and for 2026 it set $88 billion for each, with at least 50 percent of their multifamily business mission-driven affordable housing. Workforce housing loans are excluded from the cap. That is a reason to ask any agency lender how they see their allocation, particularly late in the year.

Fits: stabilized buildings, long holds, borrowers who want fixed-rate certainty and non-recourse. Does not fit: lease-up, heavy renovation, or deals that must close in 30 days.

HUD / FHA: Section 223(f) and 221(d)(4)

HUD insures loans made by approved lenders, and those loans can be financed through Ginnie Mae (GNMA) mortgage-backed securities. Two programs matter for apartment buyers. Section 223(f) covers purchase or refinance of existing multifamily property: five or more units, completed or substantially rehabilitated at least three years before application, with a mortgage term that cannot exceed 35 years or 75 percent of the remaining life of the improvements, whichever is less. HUD states that underwriting must show enough project income to repay the loan. Section 221(d)(4) insures new construction or substantial rehabilitation of buildings with five or more units for up to 40 years, subject to statutory per-unit limits.

HUD can deliver the longest fixed terms in the market. The tradeoff is time, paperwork and government-style requirements, especially on construction loans. Ask your lender to confirm current leverage, DSCR and mortgage insurance premium for your property, because those depend on property type and affordability. Details: FHA/HUD multifamily, the HUD 221(d)(4) program, and FHA vs agency.

Fits: buyers who can wait, want a very long fixed term, and plan to hold. Does not fit: quick closes or a business plan that needs to sell in a few years.

Bank and credit union loans

Community and regional banks lend their own deposits, so terms are negotiated. Typical structures are 5 to 10 year terms on a 20 to 30 year amortization, often with a rate that resets or a balloon at maturity, and many banks ask for recourse or a partial guarantee and a deposit relationship. Banks are often the best fit for 5 to 30 unit buildings, local sponsors and unusual properties. Leverage and DSCR minimums vary widely by institution. See bank balance-sheet loans and bank vs debt fund.

Fits: smaller buildings, relationship borrowers, deals needing flexibility. Does not fit: borrowers who need non-recourse or very high leverage.

CMBS (conduit) loans

CMBS lenders originate non-recourse, fixed-rate loans and sell them into securitizations. They lean on debt yield and DSCR, and their loans are commonly 10 years with 25-30 year amortization or interest-only periods. Prepayment is generally defeasance or yield maintenance, which is costly to exit early, and servicing after closing is rigid. CMBS tends to appeal on larger loans of stabilized property where agency terms are not available. See CMBS stabilized loans and CMBS vs agency.

Fits: larger stabilized deals, non-recourse seekers. Does not fit: buyers who may sell or refinance early.

Bridge loans

Bridge loans are short-term (often 2 to 3 years with extension options), interest-only and usually floating-rate, priced as a spread over an index. Today that index is usually SOFR, which the New York Fed describes as the cost of borrowing cash overnight collateralized by Treasury securities, published each business day at about 8:00 a.m. ET. Bridge lenders fund renovation scope, lease-up and recapitalizations, and often close faster than permanent lenders. The risk is the exit: you must refinance or sell before maturity, so model a higher rate and a lower appraisal. See bridge value-add loans and agency vs bridge.

Fits: value-add, lease-up, deals that need speed. Does not fit: a weak business plan or a market with no takeout debt.

Debt funds

Debt funds are private lenders that make floating-rate or transitional loans, sometimes with higher leverage than a bank. They cost more than agency debt in exchange for speed, flexibility and the ability to underwrite the business plan rather than only current income. Prepayment is often a minimum interest or exit-fee structure. See debt fund floating-rate loans and fixed vs floating.

Fits: transitional assets with a clear plan. Does not fit: stabilized buildings that qualify for cheaper permanent debt.

Construction loans

Ground-up apartments use construction loans from banks, debt funds or HUD 221(d)(4). Construction lenders size to loan-to-cost and require significant sponsor experience, guaranties, and completion and payment bonds or equivalents. Expect interest-only during construction and a plan to convert to permanent debt after stabilization. For a deeper look, see multifamily construction financing.

Fits: experienced developers. Does not fit: first-time buyers of existing buildings.

Apartment loan terms compared

These are the program-level figures we can source (agency and HUD) plus typical market ranges for products without a published term sheet. Lender terms vary and change with the market, so treat the table as a starting map and get quotes. Cells marked “varies” have no single published number.

Fannie Mae figures come from its Conventional Properties term sheet, a document dated 2019 in its footer, so confirm current terms with a lender. Freddie Mac’s Conventional Small figures are from its April 2026 term sheet. HUD’s LTV/LTC and DSCR figures are from Mortgagee Letter 2025-03. HUD figures are from HUD’s multifamily program descriptions. Everything else is a general market description, not a published program term.

Down payment: how much cash you need

There is no single down payment for an apartment building, because the loan is whichever of DSCR, LTV and debt yield is smallest. When rates are high relative to cap rates, DSCR is often the binding limit, which means proceeds land well below the headline LTV. A realistic planning range is 25 to 40 percent of the purchase price in equity, and some deals need more.

Add to that:

• Closing costs: appraisal, environmental, property condition report, legal, title, lender fees. Run them in the closing cost calculator.
• Reserves: lenders often require replacement reserve, tax and insurance escrows (Fannie Mae’s term sheet says these are typically required) and may hold post-closing liquidity.
• Capex: any planned renovation if you are not using a bridge loan with a holdback.

Sponsors sometimes close the gap with seller financing, preferred equity or a capital partner. Those change the capital stack and need lender approval. See capital stack design for value-add.

Worked example (hypothetical numbers)

This example uses round, made-up numbers to show how the three tests work. It is not a quote, and real lenders will use different assumptions.

The deal: a 40-unit building under contract at $10,000,000. Lender-underwritten NOI is $600,000 (a 6 percent cap rate on the price).

Assumptions: 6.5 percent interest rate, 30-year amortization, 1.25x minimum DSCR, 75 percent maximum LTV, 9 percent minimum debt yield. These are illustrative, not program terms.

DSCR binds. Round to a $6.3 million loan. Check: annual payments are about $478,000, DSCR is about 1.26x, debt yield is 9.5 percent, and LTV is 63 percent. The equity check is $3.7 million before closing costs and reserves, or 37 percent of price.

Notice what happened. A buyer who expected “75 percent LTV” planned on $7.5 million and was $1.2 million short. If rates fall 50 basis points or NOI rises through better rent collection, DSCR loosens and the proceeds rise. Test your own numbers in the loan sizing calculator and the multifamily mortgage calculator. If you plan to refinance or sell early, run the yield maintenance calculator to see what prepayment would cost.

Which loan fits which borrower?

First-time sponsors can get apartment loans. Lenders look at net worth, liquidity, credit and experience, and they accept a strong property manager, an experienced partner or lower leverage as substitutes. See entity structure for multifamily borrowing before you form the borrowing entity.

What lenders ask for: the document list

A complete package is the fastest way to shorten a timeline. Expect to provide:

1. Property: current rent roll, T-12 operating statement, two to three prior years, leases, and a list of capital work done.
2. Purchase: signed contract, offering memorandum if available, and the rehab budget if applicable.
3. Borrower: entity documents, ownership chart, organizational authority, and a schedule of real estate owned.
4. Sponsors and guarantors: personal financial statements, tax returns, bank or brokerage statements, and credit authorization.
5. Third party: the lender orders the appraisal, Phase I environmental and property condition assessment (for agency loans, Fannie Mae lists all three as standard), and may require a survey and title.

Operator reporting for lenders covers how to present your numbers cleanly, and the multifamily close checklist is a printable list of everything above.

Step by step: how to finance an apartment building

1. Define the deal and your plan. Price, units, hold period, renovation scope, exit. The plan decides whether you need permanent or transitional debt.
2. Normalize the NOI. Start with the T-12 and rent roll, then adjust for vacancy, management and reserves like a lender will.
3. Run the sizing tests. DSCR, LTV and debt yield, at a realistic rate. Identify which one binds.
4. Pick two or three program types. Match the table above to your stage, hold and recourse tolerance.
5. Build the package. Use the document list above.
6. Get quotes and compare terms, not just rates. Compare leverage, recourse, prepayment, fees, extension options and timeline. A lower rate with yield maintenance can cost more than a higher rate with a step-down.
7. Sign a term sheet and order third-party reports. Appraisal, environmental and property condition reports drive the schedule.
8. Diligence and underwriting. The lender reviews leases, financials and reports. Respond to every request the same day if possible.
9. Commitment, legal and closing. Lender counsel drafts loan documents. Clean entity and title issues early.
10. Fund and manage the loan. Calendar rate lock, reserve deposits, reporting deadlines and the maturity or prepayment window.

Fannie Mae’s term sheet says rate-lock commitments run 30 to 180 days, which is a useful reminder to line up your closing date and your lock window. See rate risk and refinance planning for how to think about the rate itself, and current indicative rates.

How long does it take?

Timelines depend on the program and on your responsiveness. As a general guide:

• Bridge and debt fund: roughly 30 to 45 days when the package is organized.
• Bank: roughly 45 to 90 days, varying with the bank’s committee schedule.
• Agency and CMBS: roughly 60 to 90 days or more.
• HUD: several months or longer, because of HUD review and, for construction loans, a multi-stage process.

These are market-typical ranges, not guarantees. Delays usually trace to incomplete packages, appraisal or environmental surprises and late entity cleanup, not to lender process alone. Compare agency vs bridge execution for the speed-versus-cost tradeoff.

Common mistakes

• Sizing off pro forma NOI. The lender will not.
• Chasing the highest LTV. The binding test is usually DSCR or debt yield.
• Ignoring prepayment. A 10-year yield-maintenance loan can be expensive to exit in year three.
• Underbudgeting reserves and closing costs. They are real cash.
• Starting the package after you go under contract. Do the T-12 and rent roll cleanup first.
• Using the wrong product. A bridge loan on a stabilized building or an agency loan on a lease-up both end badly.

Related loan programs

Compare this with Fannie Mae Small Loans, Freddie Mac Optigo Conventional Small and HUD 223(f) loans, which cover other financing routes for 5+ unit buildings.

Where to go next

Run the numbers first: loan sizing, commercial DSCR, debt yield, cap rate and NOI, closing costs, the multifamily mortgage calculator and the yield maintenance calculator. Check current indicative rates, and when you have a deal in mind, send it through deal review. We will match it to lenders whose programs fit the property. If you are buying a one-to-four unit rental instead, DSCR Authority covers that side.

Frequently asked questions