7 Best Apartment Building Rehab Loans 2023

 

The 7 best apartment building rehab loans in America, are ranked based on maximum loan to cost, interest rate, loan term, what it takes to qualify and customer satisfaction. Choose the multifamily rehab loan that is the best fit for you.

What are the best Rehab Apartment/Multifamily loans? 

I. Low Rate Multifamily Rehab to Freddie Perm Loan
II. Best Rate and Term Multifamily Rehab Loan
III. HUD Multifamily 223f for Light Rehabbing
IV. Lowest Rate and Highest Leverage Large Loan Program
V. Soft Money Rehab Loan for Poor Credit
VI. Fixed Rate Interest Only Rehab Loan
VII. Highest Loan to Cost Rehab Loan

 

 

1. Low Rate Multifamily Rehab to Freddie Perm Loan

This rehab apartment building loan program is for those who plan on keeping the property after rehabbing it. This is a very low rate bridge-rehab loan that converts seamlessly to a Freddie Mac perm loan once the property is fully leased and stabilized.  It is rated number one because of having the highest customer satisfaction in all categories evaluated: 

1. Low Rate – With interest only rates in the low sixes, this is one of the lowest multifamily rehab loans in America.
2. Highest Loan to Cost – Borrower up to 75% of appraised completed stabilized value (value after the property is improved and re-rented.) This is more leverage than 75% of cost.  Include the purchase price, renovation costs and closing costs in the total project cost.
3. A Two Year Loan Term – most bridge rehab loans only have a year term with the ability to pay more points for extending. 
4. Roll Over to a high quality Freddie Mac Perm Loan – the roll over is seamless. You can apply for the perm loan as soon as the improved property reaches 90% occupancy. 
5. Loan is Stated in Nature – Perfect for borrowers who do not show much income on tax returns. Yes, no tax returns are required. Furthermore, no debt to income ratio or global ratio is done.

 

Low Rate Multifamily Rehab to Freddie Mac Perm Loan Guidelines

• Loan minimum is $1,000,000
• Loan maximum is $6,000,000
• 2 year bridge loan term, 5 to 20 perm loan term
• Fix the rate for up to 10 years
• Loan is non-recourse
• There is no income verification required
• Loan to value maximum is 75% of completed value that is stabilized.
• Tax returns are not required
• Debt service coverage ratio of 1.25 when property is stabilized.
• Credit score has a 660 minimum.
• Minimum occupancy not required at start of rehab
• Net worth needs to be equal to the size of the loan
• Post-closing cash requirement of 12 months of mortgage payments
• Bridge loan has no prepayment penalty. The perm loan has a declining or yield maintenance prepayment penalty.

 

2. Best Rate and Term Multifamily Rehab Loan

The rate on this rehab financing program starts out at an unbelievable 30 day libor plus 2.75%. Amazingly, this loan can work as your perm loan with a term up to 5 years – Perfect if  you are going to keep the property after rehabbing and wait for it to go up in value as you raise rents over time. Also, interest is charged as funds are drawn – just like a bank does. This is unusual for bridge rehab lenders. Many prefer charging a minimum number of months of interest on the full balance of the full drawn loan. It gets even better: This loan is non-recourse. To learn more about the benefits of non-recourse bridge loans, see our article on bridge loans non-recourse

Best Rate and Term Multifamily Rehab Loan Guidelines

• $3,000,000 Minimum Loan Size
• $20,000,000 Maximum Loan Size
• Interest Only
• Rates as low as the 30 day libor plus 2.75%
• Term up to 3 - 5 years
• Income verification required
• 80% Maximum Loan to Cost
• 75% maximum loan to value
• Tax returns required
• Non -Recourse
• Debt service coverage ratio is 1.00
• 680 minimum credit score
• Prefer 10% of loan amount in post closing cash
• 6 - 12 month pre-payment penalty (can be negotiated)
• Property types:  Multifamily, Mixed Use, Industrial, Self-Storage, Office, Retail, Independent Senior Living, MHP. 

 

3. HUD/FHA 223F Program Light Rehabbing

At 85% loan to appraised value, this loan program can lend you the most. If you are going to keep the property forever and pass it on to your kids you cannot beat the 35-year fixed perm loan that comes with it as it will be the last loan you ever need to get on the property. Yes, this loan seamlessly rolls over to one of the lowest rate, longest fixed-rate perm loans in America – a whooping 35-year fixed fully amortizing loan. The 35-year fixed-rate is actually lower than most banks’ 10-year fixed. And to make this even better, the loan is non-recourse (no personal guarantee needed). The 223F is much easier to qualify for because there is no net-worth-to-loan ratio, and it is stated in nature with no tax returns required. For more on the HUD 223F and other multifamily HUD loan products see our Loan product page on HUD Apartment Loans. Another good feature is that if interest rates go down, you can refinance in a few months to a lower rate HUD loan with the HUD A-7.

There are some challenges for this loan program that will eliminate some candidates.   You are limited to rehab and remodeling of $14,000 per unit which might not be enough.  Also you are not allowed to replace more than 2 systems (electrical, plumbing, HVAC, are all systems). The main downside is that it can be difficult to fit this loan to a purchase, as it will take about 6 months to close. If this timeframe does not work for the seller, we can arrange a low cost bridge loan to acquire the property and then roll that loan over to the 223f HUD loan.

Guidelines of the HUD/FHA 223F Loan Program:

i. Will work for lower net worth investors – If you are less affluent, this loan is easier to qualify for:

a. You don’t have to have the requirement of your net worth being the size of the loan that the majority of commercial loan banks and commercial loan government programs have. There is no net worth to loan ratio done.
b. You don’t have to show lots of income on tax returns, and lots of money in savings once the loan has closed.

ii. No Debt to Income Ratio Done – this makes it much easier to qualify
iii. No Post Loan Cash Requirement – There is no post-closing cash requirement, but it is preferred that you are not broke after the closing of the loan.
iv. No Tax Returns Required – Income taxes are not required which makes it easier for self-employed investors or those that do not show much income on tax returns to qualify.
v. No Minimum Credit Score Specified – You do need to have decent credit (HUD does not specify a minimum credit score) but not having to worry about not qualifying because your credit score is just slightly lower than the requirement is a plus. Unsatisfied tax liens are not allowed.

The big challenges of this loan are the very big amount of paper work along with it taking 6 months to close. Closing costs are on the high side, and your property has to be at least 3 years old. However, if you plan to keep the loan for a very long time, you will come out ahead because you will not have to refinance for 35 years.

 

HUD 223F Guidelines

• $3,000,000 minimum loan size
• Unlimited maximum loan size
• Building needs to be at least 3 years old
• 35-year fixed rate period. This is based upon the determination of how many years are remaining in useful life of the buildings
• 35-year amortization
• The loan is non-recourse.
• Tax returns are not required
• 85% maximum loan to value for both the purchase as well as the renovations
• Very low debt service coverage ratio of 1.176
• Income verification not needed
• Good credit is required. However, there is no specified credit score
• Loan can be assumed for 0.50% fee
• Even though rates are considerably low, mortgage insurance is required to be paid with the mortgage payment.
• For the first ten years, there is a declining prepayment penalty.
• There is no specific post-closing cash requirement. However, you are required to not be broke once the loan closes.
• Loan minimum is $1,000,000
• Loan maximum is $6,000,000
• 2 year bridge loan term, 5 to 20 perm loan term
• Loan is non-recourse
• There is no income verification needed.
• Loan to value maximum is 75% of cost, and needs to be 75% of completed value that is stabilized.
• Tax returns are not required
• Debt service coverage ratio of 1.25 when property is stabilized.
• Credit score has a 660 minimum.
• Minimum occupancy not required

 

4. Best Large Apartment Rehab Loan Program

What makes this rehab loan program such a winner is the low interest rate (30-day libor plus 3.50%) combined with up to 80% loan to cost (limited to 75% of appraised completed stabilized value). This program is for investors who want to refinance a property that requires lots of work, or are buying a larger cost property that is value-added and needs rehabbing and repositioning (increasing rents). Also for refinancing a property that needs to be upgraded so rents can be raised.

Total project costs to be financed include the purchase price, cost of renovations, and closing costs. This rehab loan rolls over to a great 5 – 30 year fixed rate Fannie Mae loan, or a 5 – 10 year fixed rate Freddie Mac loan. Best of all, both loans are non-recourse. Click here to learn almost everything about non-recourse financing.

Best Large Apartment Rehab Loan Guidelines

• $5,000,000 minimum loan size
• 100,000,000 maximum loan size
• Income verification not required
• Net worth equal to the size of the loan
• 80% maximum loan to cost
• 75% maximum loan to value
• Tax returns not required
• Non-recourse for bridge as well as perm loans
• Debt service coverage ratio is 1.25 when property is stabilized
• Credit score minimum is 680
• There is no prepayment penalty on the rehab loan
• Post-closing cash needed of 12 months
• 6 months prepayment penalty (should plan on needing the loan for 6 months)

 

5. Soft Money Rehab Loan for Bankruptcy or Poor Credit

If you are wondering why a rehab loan program that allows bad credit comes in at number four on the best apartment building rehab loan list, it’s  because of its lower interest rates and it’s make sense loan underwriting requirements. If you have bad credit and want to rehab a building you almost always have to take hard money at 11.00 to 14.00%, and 65% loan to cost. This program has soft money rates at around 9.00% and 70% loan to cost. Ok, so nine percent might be a bit hard to swallow, but I can assure you it rarely gets lower than that for a bad credit rehab loan. If you are a developer who had a loss on a prior project and you now have a BK, and/or lower credit scores, this could be the best loan for you. Here is what it takes to qualify:

I. 30% down, or equivalent equity – this might seem high, but lenders know that people that have bad credit and put this much down complete the rehabilitation and do not default on the loan.
II. Good Neighborhood Required – having a property that’s in a decent neighborhood that needs some work is the meat of getting this loan approved.  This loan is being made to the quality of the location and the completed improved property value much more than to the quality of the borrower. 
III. Experience with Rehabilitation – having experience rehabbing a similar size property before will help you land this loan. If you have no prior experience you might have to bring in a partner or a consultant that has the experience.
IV. Having some Post-Closing Cash – or having a rainy day fund is a plus.  What if you run into more repairs than anticipated? What if it takes much longer to complete the rehab? What if it takes longer to rent up?  This will cost you more and put the lender at much higher risk if you are broke at loan closing. 
V. Owning Some Income Property – I should say owning some income property successfully is a plus. This shows the lender that you have good business sense. After all, owning an apartment building is owning a business.  It will help if you can show some investment real estate with positive income on your tax returns
VI. Having Multiple Sources of Income – This loan program does collect tax returns to show that you have the income to pay for your living expenses.  The lender is already taking a sizable risk if your credit is not great. Knowing that you earn more than enough to pay your bills is a must. Having multiple sources of income is a plus.

Soft Money Rehab Loan Guidelines

• Credit Score as low as 580 (lower credit scores considered)
•  $1,500,000 minimum loan size
• $20,000,000 maximum loan size
• Interest Only Payments
• 12 month initial term. Can extend in 6 month increments for a 1 point fee
• Income verification required
• Net worth equal to half the size of the loan
• 70% maximum loan to cost
• 75% maximum loan to value
• Tax returns required
• Full Recourse
• Debt service coverage ratio is 1.25 when property is stabilized
• Credit scores below 640 ok
• Previous discharged bankruptcy ok
• Tax liens can be paid off from loan proceeds for refinances
• Minimum 12 months payments preferred
• Post closing cash needed of 5% - 10% of the loan amount preferred

 

6. Fixed Rate Multifamily Rehab Loan

What makes this multifamily rehab loan soar is its fixed decent rate and 3-year term.   Almost all commercial rehab bridge loans are tied to the 30 day libor rate. This means you have an adjustable rate that changes monthly. The 30 day libor rate started out at 1.56% in January of 2018 and went up to $2.52% by December of 2018. That made adjustable rate bridge loans go up a full percent. 

Another plus of this rehab multifamily financing is that you can borrow up to 75% of the appraised stabilized value, not just 75% of cost. Borrow the funds for as long as you need them – up to three years. Most rehab bridge loans only go up to a year and charge you annoying points for extending when the project takes longer than expected.  Being able to include a payment reserve in the project costs is also a plus.

Fixed Rate Multifamily Rehab Loan Guidelines

• $3,000,000 Minimum Loan Size
• $25,000,000 Maximum Loan Size
• Fixed Rate Interest Only Payments
• Rates as low as the 30 day libor plus 4.50%
• Term up to 3 years
• Income verification required
• 80% Maximum Loan to Cost
• 75% maximum loan to value
• Tax returns required
• Non- Recourse negotiable
• Debt service coverage ratio is 1.10
• 640 minimum credit score
• Previous discharged bankruptcy after 2 years ok
• Tax liens can be paid off from loan proceeds for refinances
• Minimum 12 months payments preferred in post-closing cash
• 6 month pre-payment penalty
• 2 to 5 year term
• Minimum 12 month interest pre-payment
• Loan types are retail, office, multifamily, industrial/flex, mobile home parks, parking garages, self-storage, hospitality (but is recourse)
• Territory is nationwide
• Earn-outs available for performance

 

7. Highest Loan to Cost Rehab Loan

What makes this rehab bridge loan such a winner is that it goes up to 85% of Cost plus has a very low bridge loan rate in the low sevens. On top of this the loan term can range from one to three years for those who are working on larger projects. With a loan size range of two million to forty million dollars, this program can cover most size projects.  This loan is constrained by 75% of the improved stabilized property which should not be difficult to obtain as long as you can raise rents. Partial recourse or non-recourse can be arranged. 

Highest Loan to Cost Rehab Loan Guidelines

• $2,000,000 Minimum Loan Size
• $40,000,000 Maximum Loan Size
• Interest Only Payments
• Rates as low as the 30 day libor plus 3.50%
• Term up to 3 years
• Income verification required
• 85% Maximum Loan to Cost
• 75% maximum loan to value
• Tax returns required
• Non Recourse negotiable
• Debt service coverage ratio is 1.00
• 640 minimum credit score
• Previous discharged bankruptcy after 2 years ok
• Tax liens can be paid off from loan proceeds for refinances
• Prefer 10% of loan amount in post closing cash
• 6 - 12 month pre-payment penalty
• Non-recourse loan
• Property types:  multifamily, mixed use, office, retail, hospitality, special use, luxury residential and land