What is an apartment building loan?
An apartment building loan, or multifamily loan, finances a residential property with five or more units, and the lender underwrites the property’s net operating income first. Once a building passes four units, it leaves the residential mortgage world and enters commercial lending, with its own programs, documents and tests.
Usually the borrower is an LLC or partnership that owns only that building. Many loans are non-recourse, with carve-outs for bad acts such as fraud. The program you choose sets the term, amortization, prepayment terms and how much you can borrow, so it pays to compare several before you sign a purchase contract.
Apartment building loan programs compared
The main multifamily programs differ most on loan size, term, leverage and speed. The published figures below come from each program’s own term sheet or rules; banks, life companies and CMBS lenders set their own terms deal by deal.
| Program | Loan size | Term / amortization | Max LTV / min DSCR | Source |
|---|---|---|---|---|
| Fannie Mae DUS fixed rate | No published cap; non-recourse on most loans over $750,000 | 5–30 years / up to 30 years | 80% / 1.25x (conventional) | Fannie Mae fixed-rate term sheet |
| Fannie Mae Small Mortgage Loans | Up to $9 million nationwide | 5–30 years / up to 30 years | 80% / 1.25x | Fannie Mae small loan term sheet |
| Freddie Mac Optigo conventional fixed rate | $10 million minimum | 5–10 years (longer if not securitized) / up to 30 years | 75–80% / 1.25x, by term | Freddie Mac fixed-rate term sheet |
| Freddie Mac Optigo Conventional Small | Generally $2 million to $10 million | 5, 7, 10, 12 or 15 years / up to 30 years | 75–80% / 1.25x, by term | Freddie Mac Conventional Small term sheet |
| HUD 223(f), market rate | Set by HUD statutory limits and underwriting | Up to 35 years or 75% of remaining economic life, fully amortizing | 87% / 1.15 | HUD MAP Guide; Mortgagee Letter 2025-03 |
| HUD 221(d)(4), market rate | Set by HUD statutory limits and underwriting | Up to 40 years | 87% loan-to-cost / 1.15 | HUD MAP Guide; Mortgagee Letter 2025-03 |
| Bank, credit union, life company, CMBS | Varies | Varies | Set by each lender | Lender term sheet |
| Bridge loan | Varies | Short term, often interest-only | Sized on loan-to-cost and stabilized value | Lender term sheet |
Fannie Mae multifamily loans: DUS and Small Mortgage Loans
A Fannie Mae multifamily loan is made by a Delegated Underwriting and Servicing (DUS) lender, which underwrites, closes and services the loan and shares the credit risk with Fannie Mae. Because of that delegation, DUS loans can close on a more predictable schedule.
Fannie Mae’s fixed-rate term sheet lists terms of 5 to 30 years, amortization up to 30 years, 80% maximum LTV and 1.25x minimum DSCR for conventional properties, with yield maintenance or a prepayment premium for early payoff. Loans are typically assumable with approval, which can help when you sell.
Small Mortgage Loans cover loans up to $9 million nationwide with the same 80% and 1.25x headline limits. For a 20- to 60-unit building, this is often the first agency option to price.
Freddie Mac Optigo loans, including Conventional Small
Freddie Mac buys multifamily loans from approved Optigo lenders, and its conventional fixed-rate term sheet starts at $10 million, with 1.25x minimum coverage and maximum LTV of 75% to 80% depending on term. Floating-rate options are priced over 30-day Average SOFR.
For smaller buildings, Freddie Mac launched Optigo Conventional Small on April 15, 2026, replacing the former Small Balance Loan program. It generally covers loans of $2 million to $10 million, up from the old program’s $7.5 million ceiling. The term sheet offers 5- to 15-year fixed terms, up to 30-year amortization, non-recourse execution, and full-term interest-only at lower leverage.
HUD 223(f) and 221(d)(4) loans
HUD 223(f) is FHA mortgage insurance for buying or refinancing an existing apartment building with at least five units, and it offers some of the longest fixed-rate, fully amortizing terms for existing buildings. HUD’s MAP Guide sets the maximum term at 35 years or 75% of the remaining economic life. Mortgagee Letter 2025-03 raised the market-rate limits to 87% LTV and lowered minimum DSCR to 1.15.
Section 221(d)(4) insures new construction and substantial rehabilitation, with terms up to 40 years. For applications submitted since October 1, 2025, HUD charges a 0.25% upfront and 0.25% annual mortgage insurance premium on both programs. The trade-off is time and paperwork: HUD processing takes much longer than agency loans, and properties that need substantial rehabilitation don’t qualify for 223(f).
Bank, credit union, life company and CMBS loans
Banks and credit unions hold loans on their own books, so they can be flexible on smaller buildings, lighter renovations and local sponsors, but they often want a personal guarantee and a deposit relationship. Terms tend to be shorter, with rate resets or balloons.
Life insurance companies lend conservatively on high-quality buildings at lower leverage and can offer long fixed terms. CMBS loans are pooled into bonds and handled by a servicer; they are usually non-recourse but come with defeasance or yield maintenance and rigid servicing. Read our guide to defeasance and yield maintenance before you choose one.
Bridge loans and seller financing
When a building has high vacancy or needs renovation, a permanent lender may not finance it yet. A bridge loan covers the gap until NOI is stable. Our bridge loan guide covers rate caps, loan-to-cost sizing and exit risk in detail.
Seller financing is the other common alternative. The seller carries a note for part of the purchase price, sometimes behind an assumable loan. This can work when bank leverage is tight. See our seller financing guide for how those notes are structured.
What lenders underwrite on an apartment building loan
Multifamily lenders underwrite the property and the sponsor. The loan size is the smallest amount that passes every property test, and the sponsor tests often decide whether a term sheet is issued at all.
- DSCR: underwritten NOI divided by annual debt service, using the lender’s own NOI, not the seller’s pro forma.
- LTV: the loan divided by the lower of appraised value or purchase price on an acquisition.
- Debt yield: NOI divided by the loan amount, a rate-free test many CMBS and balance-sheet lenders use.
- Net worth and liquidity: lenders want the key principals to show net worth and cash relative to the loan size, and they verify it with statements.
- Experience: a track record owning or managing similar buildings, or a third-party property manager with one.
- Credit and background: credit reports and background checks on the key principals and guarantors.
Documents checklist for a multifamily loan
Lenders will ask for property, borrower and transaction documents, and having them ready can save weeks. Expect most of these on an acquisition or refinance:
- Current rent roll and trailing 12-month operating statement, plus two to three years of operating history.
- Purchase contract, or the existing loan statement on a refinance.
- Capital plan and renovation budget, if any.
- Borrowing entity documents, organizational chart and operating agreement.
- Personal financial statements, schedule of real estate owned and bank or brokerage statements for key principals.
- Resume of the sponsor and property manager.
- Third-party reports the lender orders: appraisal, property condition assessment and Phase I environmental site assessment, plus zoning and seismic reports where required.
How to get a loan for an apartment building, step by step
Getting an apartment building loan follows the same path at most lenders, from a quick quote to a closing that runs alongside the purchase.
- Size the deal yourself: build a conservative NOI, then test DSCR, LTV and debt yield at a realistic rate.
- Request quotes from two or three channels, such as an agency lender, a bank and a HUD lender if time allows.
- Sign a term sheet or application and pay deposits for third-party reports.
- Deliver the documents checklist, while the lender orders the appraisal, condition and environmental reports.
- Lock the rate, which on agency loans usually happens after underwriting is largely done.
- Receive the commitment, review the loan documents with counsel and close with the purchase.
Worked example: one building, two loan programs
Here is how one building sizes under two programs. A 40-unit building is bought for $7,500,000 with $450,000 of underwritten NOI, a 6.0% cap rate. Assume a 6.25% rate for a Fannie Mae Small Mortgage Loan on a 30-year schedule, and 5.75% on a 35-year HUD 223(f) loan plus the 0.25% annual MIP.
Under Fannie Mae, 80% LTV would allow $6,000,000, but 1.25x DSCR caps debt service at $360,000 a year. That supports about $4,872,000, with payments of $359,973 a year. The buyer brings $2,628,000, or 35% of the price.
Under HUD, 87% LTV would allow $6,525,000, but 1.15 DSCR caps debt service plus MIP at about $391,304. That supports about $5,677,000, costing $377,067 in principal and interest and $14,193 of MIP, or $391,260 in total. HUD lends $805,000 more and cuts the equity to $1,823,000, but cash flow after debt service drops to $58,740 from $90,027, and the loan takes longer to close.
In both cases DSCR, not LTV, sets the loan. That’s normal when interest rates are close to or above cap rates, and it’s why buyers who want the most leverage on a stabilized building often look at HUD.
| Test | Fannie Mae Small Mortgage Loan | HUD 223(f), market rate |
|---|---|---|
| LTV limit | 80% × $7,500,000 = $6,000,000 | 87% × $7,500,000 = $6,525,000 |
| Max annual debt service | $450,000 ÷ 1.25 = $360,000 | $450,000 ÷ 1.15 = $391,304 |
| Rate / amortization (assumed) | 6.25% / 30 years | 5.75% / 35 years + 0.25% MIP |
| Loan amount | About $4,872,000 | About $5,677,000 |
| Annual debt service | $359,973 | $391,260 |
| Equity needed | $2,628,000 | $1,823,000 |
| Cash flow after debt service | $90,027 | $58,740 |
Investing in apartment buildings with Skyline
Skyline Capital Investments is a multifamily sponsor that buys apartment buildings with five or more units nationwide. Choosing the right loan program is one of the biggest decisions in each business plan, and we weigh leverage against cash flow, prepayment and exit flexibility.
Our Investor Network is where we share educational material and let members know about opportunities that may fit them. Specific offerings are made only to eligible investors through the offering documents, and most are limited to accredited investors. Join the network to learn how we approach financing.
