Apartment Loans 101

Apartment Loans 101

Apartment Loans 101Understanding the fundamentals of apartment loans can be very helpful if you're looking to invest in apartment buildings because the sellers of many well performing properties will not go for a creative master lease agreement but instead may require a straight sale to which a loan would help you facilitate. In this training, you'll discover the basics of apartment loans, including how apartment loans differ from residential mortgages, how to qualify for an apartment loan, what apartment lenders like and dislike, the 10 steps to obtaining an apartment loan as well as what apartment loans are available in the marketplace today.

Apartment Loans 101 PodCast Episode


Here’s a summary of what you learned in the video above:

PART 1: Two Ways Apartment Loans differ from Residential Mortgages (1:19)

  • 1. Apartment Banks qualify the property first and the borrower second. Residential lenders do the exact opposite and qualify the borrower first and the property second
  • 2. Apartment loans have much larger down payment requirements, 20% at a minimum to as much as 40% in some cases, as opposed to many residential loans that may only require 5-10% down.

PART 2: How to Qualify for an Apartment Loan (3:56)


  • Annual Net operating income must cover the yearly mortgage payment must be 1.2 times or greater, also known as the Debt Coverage Ratio (DCR).


  • The property being purchased at or below appraised value as well as a large enough down payment so that the Loan to Value (LTV) of 75% or lower.


  • 660 Fico Score
  • No Bankruptcies in the past 7 years
  • No short sales or foreclosures in the past 3 years
  • No open judgments
  • Liquidity, cash in the bank
  • Net Worth Requirement

PART 3: What Apartment Lenders Like and Dislike (9:06)


  • Solid Cash Flow
  • Good Price
  • Evidence of Good Operational History (2 to 3 year back records proving the property has already been making money)

Don't Like

  • Poor financial records
  • Poorly maintained (larger down payment to mitigate their risk)
  • Weak market (high vacancy, plight or poverty)

PART 4: Ten Step Apartment Loan Process (13:34)

The process typically takes 45 days or longer to complete.

Phase 1

  • Step 1. Send financials and photos
  • Step 2. Complete loan application and review borrower credit
  • Step 3. Order appraisal and site inspection
  • Step 4. Register loan into lender's system and lock rate

Phase 2

  • Step 5. More underwriting (1 - 2 weeks)
  • Step 6. Order termite inspection and title search
  • Step 7. Loan commitment (1 - 2 days)
  • Step 8. Approval! A letter of commitment (LOC) OR they are going to request more documentation
  • Step 9. Finalize closing
  • Step 10. Closing and Record Documents

PART 5: Apartment Loans Available Today (19:28)

Where do you go to get a loan?

  • Option # 1 - Mortgage Banker: Local small, regional or national bank
  • Option # 2 - Mortgage Broker: Works with all kinds of banks

Fannie Mae and Freddie Mac Small Apartment Loan Program

  • Planned to lend $60 Billion this year and have already used up over half of the allotment
  • 5+ Units
  • Minimum $750,000 to Maximum $5,000,000)
  • 20% down payment
  • 1.25 Debt Coverage Ratio (DCR)
  • Low Fixed Interest Rates (5 or 7 or 10 years with a 30 year amortization)
  • Interest only payments option
  • These are non recourse loans
  • 680 FICO score
  • No previous experience required if the property is local to you (If you are long distance, you will need previous experience)

That's Apartment Loans 101


  1. very helpful.thank you.

  2. Baron Castillo says:

    Hi Peter: I’m an apartment broker in Pasadena CA. I’d like to repost this information on my website (crediting you of course). Are you OK with me reposting? In the past, I have referred your videos to clients.

  3. Deming Shi says:

    Hi,I am a long time(30 years) landlord, I purchased 5 properties without agent.Now I am buying a six unit
    apt building. When I read your articles I get more knowledge, like this “apartment loan 101” is good for me to buy this 6plex. You constandly send me free articles, I appreciate you very much. You did a great job!

  4. Information is concise and understandable…Thanks so much for that, been following a few guru’s whose information seems intentionally vague.

  5. What about land contracts ? You don’t mention them in your video.

    • Peter Harris says:

      Land Contracts are synonymous with Contract for Deed and when I talk about the “Master Lease” concept, I am incorporating the Land Contract / Contract for Deed in that concept.

  6. I would like to consult with you about a commercial property I have for sale. I think it would be a potential cash flow positive, I’ve never invested before and would like to run the numbers by you to see if you’d like to partner? Anyone else may respond that knows what they’re doing, also.

  7. Gerard Mallory says:

    Mr. Harris,

    Good afternoon! Thank you for putting together such an awesome video ( Apartment Loans 101 ). It is extremely helpful and very informative. I have watched just about all of your YouTube videos along with the accompanying videos that are available on your website (CPA) Commercial Property Advisors.


    Gerard Mallory

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