How To Qualify for a Fannie Mae Loan To Buy An Apartment Building
You have several options for commercial loans, however, we're going to focus on buying an apartment complex with a Fannie Mae loan.
Fannie Mae is a popular government-backed loan with rates that are typically lower than other property loans. This mortgage program can be used for both multifamily properties and mixed-use commercial properties that are primarily residential.
Applying is the same as any other type of mortgage, but there are some differences when it comes to qualifying.
Fannie Mae will want to make sure that the property meets their minimum standards of safety, security, soundness. Even after you’re granted the loan, the government may come to inspect the property to make sure that you are keeping up with those standards.
If they find violations, you may be fined a penalty.
FHA loans for buying an apartment complex can range from $750,000 to as high as $5,000,000. While most lenders require 20 to 25% down payment, with Fannie Mae, you can buy an investment property with as little as 15% down.
Fannie Mae will also look at the current property occupancy of the property. Look for apartment buildings that have less than 5 percent vacancy for the past 90 days. However, occupancy rates are not a hard rule, Fannie Mae also considers the property value and your experience.
For example, if you have a downpayment of 25% and previous experience with managing commercial properties, a 92% occupancy rate may be okay.
Apartment loans are approved mostly by the soundness of the property and your credit, but your credit score does not have to perfect.
A score of about 680 with no major derogatory credit history is usually enough to prove your financial stability. The same goes for any partners that are applying for the loan along with you.
In addition to having the funds for down payment and closing costs, you’ll also want to have money saved up to cover 10 to 12 months of expenses. Fannie Mae bankers will look at your personal debt and assets too.
Putting all of your assets into the “expense savings” to help qualify for the loan will not work. Your expense savings will need to be separate from your personal assets.
Your Management Experience
Fannie Mae considers your experience with managing a similar type of property. So if you’re looking to purchase a 10-unit apartment complex, previously managing 10 single-family residential homes may not meet requirements.
The good news is that Fannie Mae is flexible with many of their requirements, so hiring a qualified management company may be all you need to seal the deal.
Investing in real estate is one of the most profitable investments available, and a government-backed loan from Fannie Mae can help make it happen.