In 2021, borrowers will need a significant amount of documentation to apply for an apartment loan, including an appraisal and other required third-party reports. The required documentation and reports generally include:

• Appraisal: An appraisal attempts to denote the current market value of a property. Appraisals are typically required to be conducted by a professional appraiser currently licensed in the area in which the property is located. Appraisers will generally use a combination of methods, including:
  • The income approach, which estimates the value of a property based on its income.
  • The sales comparison approach, which estimates the value of a property based on recent sales of similar properties nearby.
  • The cost approach, which estimates the value of a property based on the estimated cost to rebuild it, plus the value of the land, and minus any depreciation.
• Property Condition Report/Physical Needs Assessment/Engineering Report: This report observes the physical condition of an apartment property to determine when specific components will need to be repaired or replaced. The report is used to calculate required replacement reserves (funds set aside each year for expected future repair costs). These reports can be requested by a variety of apartment lenders, but are more commonly required for lenders originating HUD multifamily and Fannie Mae/Freddie Mac multifamily loans.
• Phase I Environmental Assessment: A Phase I Environmental Assessment (ESA) examines the area of a property for environmental issues, such as contamination, that could pose a threat to current/future residents or the surrounding community. This could possibly escalate to Phase II and Phase III ESAs if issues or evidence of contamination have been found in the initial Phase I assessment. Phase I ESAs are not always required by lenders, but in most cases are.
• Title Report: Like with the purchase of a single-family home, a title report will make sure that there are no legal claims to a property’s title that could supersede your own.
• Property Survey: A property survey records the boundaries of a property, as well as determining any easements and or other title issues that could impact the property’s use or profitability. This is not always a requirement by lenders, especially if a report is available from the past several years, however, it is more commonly required when potential title issues are found or even suspected.
• Seismic Report: Reports generally only required in areas where earthquakes are common, such as Southern California.
• Zoning Report: May sometimes be required when there are potential issues or confusion around the zoning status of a property.

In 2021, the forms needed to secure an apartment loan include:

• Borrower Forms and Templates
• HUD/FHA Multifamily Documentation
• Apartment Finance Document Templates

These forms and templates can be found on the following websites:

• Apartment Finance Documents, Forms, and Templates
• Apartment Financing Forms and Templates
• HUD/FHA Multifamily Documentation

In 2021, there are a variety of templates available to help with apartment loan applications. According to Apartment.Loans, the most commonly requested documents include:

• Credit history
• Collateral
• Financial state of the individuals behind the loan
• Historical financials
• DSCR
• Loan ratios
• Expenses
• Debt yield

Additionally, according to Multifamily.Loans, the following forms and templates are available for download:

• Borrower Forms and Templates
• Financial Analysis
• Loan Application
• Loan Agreement
• Loan Commitment Letter
• Loan Estimate
• Loan Origination Agreement
• Loan Servicing Agreement
• Mortgage Note
• Promissory Note
• Real Estate Purchase Agreement
• Security Agreement
• Title Commitment
• Truth in Lending Disclosure

The best strategies for getting approved for an apartment loan in 2021 are to have good credit (660+ is typically expected) and between 25-30% of the total loan amount as a down payment. Additionally, the property itself will need to have a debt service coverage ratio or DSCR, of 1.25-1.30x. This means that the building’s income will need to exceed its annual debt service by at least 25-30%. Skin in the game is equally important in most cases, but that does not mean first time investors are automatically overlooked.

Instead of wasting your precious time and energy trying to figure out everything on your own, consider approaching an experienced intermediary, like the ones we have at apartment.loans. At apartment.loans, we do the work for you, utilizing our strong network of banking relationships to have banks compete against each other to give you the best loan possible.

When applying for an apartment loan in 2021, the most important factors to consider are credit history, collateral, and financial state of the individuals behind the loan, historical financials, DSCR, loan ratios, expenses, debt yield, and much more. Additionally, borrowers will need to have good credit (660+ is typically expected) and between 25-30% of the total loan amount as a down payment. The property itself will need to have a debt service coverage ratio or DSCR, of 1.25-1.30x. This means that the building’s income will need to exceed its annual debt service by at least 25-30%.

For more information, please refer to the following sources:

• How to Purchase an Apartment Property
• 2021 Apartment Finance Documents, Forms, and Templates
• Apartment Loans Under $1 Million