Are you looking to refinance your apartment? In today’s market with historically low interest rates, many apartment owners are wondering how to qualify for the best rates. It’s important to understand that there may be things that have happened since you last financed your apartment building that could adversely affect your ability to refinance. Underwriters will take a look at factors such as subject property value, loan-to-value ratio, debt-service-coverage ratio, borrower’s net worth, liquidity, and credit rating.
Typically, the most important factor to consider when refinancing an apartment loan is getting the best rate possible. However, there are other crucially important loan terms that need to be considered as well. For example: You need to know whether the rate is fixed or adjustable? Does your loan have a prepayment penalty? If you are considering selling the property, the prepayment penalty will be important. Are you looking for a recourse loan or a loan without a personal guarantee? What are the closing costs involved with this multifamily loan? While a lower rate might look attractive on the surface, it might not be worth it when you take all the costs into account. Some apartment mortgage lenders do not deliver on their promises and change terms during the underwriting of your loan. Furthermore, is your lender experienced with apartment lending in your area? There are some lenders who promise terms they can’t ultimately deliver on. You want to know upfront if you are talking to a qualified lender. These are just some of the issues, beyond interest rates, that you need to be aware of when refinancing your apartment loan.
Here are some of the factors that lenders will consider when they evaluate your apartment loan application:
- Property location – Location, Location, Location! Lenders typically prefer to lend on properties in large cities or suburban areas. They usually don’t love very rural areas as much. Multifamily loans in rural areas are viewed as much riskier because these properties are typically harder to rent. If your apartment is in a very rural market, make sure to discuss that with the lender upfront.
- Lenders also want to see an apartment with high quality tenancy. Are the tenants signed to leases or are they month-to-month? Do you need to offer rental concessions in order to keep the units filled? Lenders do not like apartments that have to fight to maintain strong occupancy levels.
- What’s the cash flow and occupancy rate of the apartment building? Lenders like to finance apartments that have constant positive cash flow and a strong occupancy history. Lenders typically want to see an occupancy of at least 90% of the available units. Major fluctuations in cash flow cause a lot of concern for multifamily lenders.
- How is the condition of the subject property? Is it in good condition or does it need significant repairs and renovation? An apartment building in need of repairs could negatively impact cash flow and the ability to pay the mortgage.
- What are the loan to value and debt service coverage ratios? Most borrowers understand the LTV but are not always as aware of debt service coverage ratio. The debt service ratio looks at the mortgage payment in relation to the net operating income. Lenders utilize this ratio to ensure that enough cash flow exists at the subject property.
- What is your credit score? Conventional lenders typically expect to see credit scores above 680. Lower credit scores will require a solid explanation if you want to qualify for a conventional multifamily loan.
- What is your net worth and liquidity? Lenders want to make sure you have enough money to deal with potential setbacks!
- Lastly, do you have any experience managing or owning apartment buildings? Lenders will often require that a borrower has prior experience owning or managing real estate.
These are some of the important questions that lenders will ask when reviewing an apartment loan application
Another tip to get the best rate and terms is to consult a qualified commercial mortgage broker. A competent commercial mortgage broker who deals with many different types of lenders and understands the market from a national vantage point has an advantage over local banks. While local banks are limited to their own loan programs, mortgage brokers represent national institutions such as agency lenders, national commercial banks, credit unions, insurance companies, private lenders, hard money lenders and CMBS lenders. This wide choice of lenders will increase the likelihood of getting the best rates and terms for your apartment loan.
If you are looking for a freddie mac multifamily loan. commercial mortgage or an apartment loan, please do not hesitate to reach out to the professionals at Select Commercial Funding at 516-596-8937 or 516-596-8297. For a quick quote, click the button below! Get a free loan quote today!