Apartment Construction Loans

High-Leverage Construction Loans for Multifamily Properties

Apartment Construction Loans

Construction loans for apartment buildings are typically more expensive and harder to get than financing for acquisitions alone. However, that doesn't mean you need to settle for ultra-high interest rates and poor loan terms. There are actually quite a few great options on the market, including HUD's flagship 221(d)(4) apartment loan program. The HUD 221(d)(4) program offers three years of interest-only (I/O) apartment construction financing, followed by 40 years of non-recourse, fixed-rate, fully-amortizing financing.

HUD apartment construction loans are a fantastic option for qualified borrowers but they can take a long time to close (sometimes up to a year). For borrowers that need a faster closing, banks and credit unions are often a better choice; however, life companies and specialized construction lenders can also provide good terms.

In most cases, a construction lender will make a series of payments on a predetermined schedule to the borrower, often with an inspection prior to each draw to ensure the project is on-time and on-budget.

HUD 221(d)(4) Apartment Construction Loans

  • Loan Size: Generally $2 million+
  • Amortization: Varies; HUD 221(d)(4) offers up to 40-years fixed and fully amortizing loans
  • Leverage: Typically 75% LTC/LTV (85%+ for HUD apartment construction loans)
  • Pricing: Rates vary; typically consisting of adjustable-rate, interest-only financing
  • DSCR: 1.20x Minimum DSCR

Bank Apartment Construction Loans

Bank construction loan terms include:

  • Loan Size: Generally $1 million+
  • Amortization: Varies
  • Leverage: Typically 70% LTC/LTV
  • Pricing: Rates vary; typically consisting of adjustable-rate, interest-only financing
  • DSCR: 1.20x Minimum DSCR
  • Builder: Generally needs to be approved by the lender during the loan application process.

Stated Income/Hard Money Apartment Construction Loans

Hard money loans can be a smart option for borrowers with credit or legal issues or those who need to close a deal quickly for other reasons. However, they can also be a good choice for those who need construction financing. Interest rates, however, can be high and (like bank loans) hard money is nearly always full recourse. Hard money construction loan terms typically include:

  • Loan Size: Generally $1 million+
  • Amortization: Varies
  • Leverage: Typically 60% LTV for land, with 100% of construction costs covered
  • Pricing: Rates vary; typically consisting of adjustable-rate, interest-only financing
  • Recourse: Loans are full recourse

Life Company Construction Loans

Life companies are known for their relatively strict commercial real estate lending requirements. However, for highly-qualified borrowers, construction-to-permanent loans are sometimes available.

  • Loan Size: Generally $5 million+
  • Amortization: Varies; often up to 25 years
  • Leverage: Typically 70% maximum LTC/LTV (though many life companies will only go up to 55-60%)
  • Pricing: Rates vary; typically consisting of adjustable-rate, interest-only financing for construction, followed by fixed-rate financing for the remainder of the loan term
  • DSCR: 1.20x Minimum DSCR
  • Recourse: Life company loans are typically non-recourse