Do you want to start from scratch and make a fortune in real estate? There are numerous opportunities in new apartment projects, but finding the right financing can be challenging.
Privately owned housing starts for buildings with five or more units were at a seasonally adjusted annual rate of 414,000 in June 2025. This shows that there is a strong market for new multifamily projects.
We understand that business loans can be confusing due to terms like “hard money” and “DSCR loans” being used frequently. That’s why we’re here to do the work for you.
We are correspondent and table lenders at CommercialConstructionLoans.Net, and we have been an insurer for 30 years. We’ve helped a vast number of buyers get the money they need, from experienced pros to people who have never invested before. We have an extensive network of over 200 private investors and lenders, providing you with the best loan options.
To help you understand “new construction apartment loans,” this blog will talk about everything from the different types of loans to what lenders look for in a way that is easy to understand.
What Are New Construction Apartment Loans?
A new construction apartment loan is a type of borrowing that can be used to pay for the whole process of building a new multifamily property. These loans are not as long-term as loans for buying a current home. They pay for the land, materials, and labor during the construction phase. This gives you the money you need to start from scratch with a construction project. A typical mortgage is used to buy a finished building, but these loans are not the same thing. A new construction loan, on the other hand, is a type of real estate development loan that is paid back in parts, or “draws,” as the project moves forward.
The Different Types of Financing Options for New Construction Apartments
Let’s break down the most common financing options you’ll encounter for apartment buildings.
Conventional Construction Loans
These are often available from banks and credit unions, and they’re a good choice for people who have good credit and a history of paying their bills on time. While the interest rate is usually cheaper, the approval process can be stricter and take longer. To make sure the borrower is financially stable, traditional lenders want to see a thorough real estate development plan and a track record.
HUD FHA Loans
Through the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD) has several programs that can help pay for the building of new apartment homes. People are interested in these government-backed loan choices because they offer long-term, fixed-rate loans that can work well for affordable housing projects. A high loan-to-value (LTV) ratio is another thing that makes HUD FHA loans stand out. This means that you can buy a home with less money down.
Bridge Loans & Hard Money Loans
People often “bridge” the gap between the start of a project and a longer-term loan with these short-term loans that can be paid back quickly. When someone gets a hard money loan, the investor looks at the value of the property rather than the borrower’s credit score. This is called asset-based financing. They have higher fees and interest rates, but they are great for jobs that need to be done quickly or for people who might not be able to get traditional loans. Most of the time, these loans come from private lenders, and the terms may allow you only to pay the interest.
SBA Loans
Small Business Administration (SBA) loans can be used to pay for the building of business property, such as apartment buildings. One necessary condition, though, is that the owner must live in a large part of the building (usually at least 60% for new buildings). Even though SBA 504 loans and other programs have low interest rates and long-term loan choices, the application process is often very long.
Navigating the Application Process: What Lenders Look For
You have found a good place and a good plan. How do you get a lender to agree? It’s not enough to have a good idea to get a loan for a new construction apartment; you also have to show that you have the skills and means to make that idea come true. Lenders use several essential factors to judge the risk of your project and decide if it is a good investment.
Your Credit Score and Financial History
To get most conventional loans, you need to have a good credit background. Lenders want to see a high credit score because it shows that you can handle your debts well. They will also look at your credit records and see how much debt you have compared to your income to make sure you can pay back the loan. This is a crucial step because lenders will trust that you can finish the project successfully if you have a strong financial base.
The Project Itself
Lenders want to see a project plan that is thorough and full of details. This includes a clear budget, a reasonable schedule, and a team with extensive experience. They will closely examine the property’s potential value after construction and often use the appraised value to determine the loan-to-value (LTV) ratio. Lenders will also want to see a feasibility study that looks at how much rent the apartments could bring in and how much demand there is for new flats in that area. The lender will be more likely to give you money if you have a well-thought-out plan.
Required Documentation
To back up your claims, you’ll need to provide a comprehensive set of documents. Having these ready will streamline the application process.
- Detailed architectural plans and blueprints.
- A comprehensive budget and timeline for the construction.
- A resume of your experience and your team’s qualifications, including your general contractor.
- Financial statements and proof of income for the borrowers.
- Appraisal and environmental reports for the land.
How CommercialConstructionLoans.Net Can Help
We don’t just tell you how we’re different; we show it. It can be hard to figure out new construction loans on your own, but you don’t have to. At CommercialConstructionLoans.Net, we want to help you build your real estate business.
We’ve been an insurer for more than 30 years, so we know the whole process inside and out. There is no doubt that we know what lenders want and how to make your project look its best. We’ve worked on everything, from simple jobs to complicated, out-of-the-box deals. Because of this, we can predict possible problems and make sure that your application is set up in a way that gives you the best chance of being approved.
Our Network of Lenders
We’re not just one lender. We have access to over 200 private lenders and investors, so we can find a solution that works for you, even if your project isn’t typical or your credit score isn’t great. As correspondent lenders, we can offer you a variety of loan choices. This lets you pick the one that fits your project’s specific needs the best. This vast network is a significant advantage because it enables us to secure funding that regular banks might not provide.
Tailored Financial Consulting
We do more than lend money; we also offer financial advice. We’ll help you figure out what you want and show you the way in the real estate market. We can help you find the best way to get the money you need, whether it’s a long-term standard loan, a bridge loan with only interest, or a fixed-rate loan. We aim to provide you with the information and tools you need to make informed decisions and create a project that generates revenue.
Referral Programs for Brokers
When two people work together, they can do great things. Because of this, we have referral programs for both new and veteran brokers that are both exclusive and non-exclusive. We appreciate your knowledge and offer great chances to work together. Our programs provide a clear path to success and foster a mutually beneficial relationship, whether your client aims to fix up and flip a house, renovate an existing one, or build a new one from scratch.
Understanding Key Loan Terms
Let’s demystify some of the terms we’ve mentioned. When you’re talking to a lender or reading loan documents, you’ll encounter a specific vocabulary. Knowing these terms will help you feel more confident and in control of the process.
Loan to Value (LTV)
This is the ratio of the loan amount to the value of the property. For a construction project, the estimate is often based on the value expected after completion. For example, if a property is appraised to be worth $1,000,000 after construction and a lender gives you a loan for $750,000, your LTV is 75%. Lenders use this ratio to determine the maximum amount they are willing to lend.
Interest Rates
The interest rate is simply the cost of borrowing money, expressed as a percentage of the loan amount. New construction loans often have higher interest rates than loans for existing properties because they carry more risk for the lender. However, the interest is a necessary part of the process and a key factor to consider when evaluating your loan options.
Term Loans
A term loan is a loan with a set repayment schedule over a fixed period. These loans have a specified maturity date, and payments are typically made in regular installments. The term can vary significantly, from a few years for a short-term construction loan to 20 or 30 years for a permanent loan.
DSCR Loans
DSCR stands for Debt Service Coverage Ratio. These loans are popular for investment properties because they are based on the cash flow of the property itself, rather than the borrower’s income. The DSCR is a metric that compares the property’s net operating income to its debt service (loan payments). Suppose the property’s income is high enough. In that case, to cover the mortgage payments comfortably, you may be eligible for a DSCR loan, even if your income is modest.
No-Doc/Lite-Doc Loans
These loans require minimal documentation, making the application process faster. As the name suggests, “no-doc” loans require little to no proof of income, while “lite-doc” loans require some basic verification. They are a good option for specific borrowers, such as self-employed individuals or those with complex financial situations. Still, they often come with higher interest rates to compensate for the increased risk to the lender.
Conlusion
It’s a big job to build a new apartment building, but if you find the right financial partner, you can make your dream come true. You can get a loan in several ways, such as through conventional loans or HUD FHA financing. To secure the funding you need, you require a solid project plan and a partner with extensive experience. With over 30 years of experience in the real estate business, we can help you find the best way to secure the money you need, whether through our network of private lenders or by ensuring the loan meets Fannie Mae or Freddie Mac’s requirements.
Are you ready to make your dream come true?
For a free assessment, please email us at CommercialConstructionLoans.Net. No matter if you’re building a single-family home or a big apartment complex, our team of pros is ready to help you through the process. Come with me as we make your future.
FAQs
What is a construction-to-permanent loan?
A construction-to-permanent loan is a single loan that finances both the construction of the apartment complex and the long-term mortgage after the project is complete. It saves you time and money by only requiring one loan application and one set of closing costs, as opposed to taking out a short-term construction loan and then a separate, permanent mortgage (often called a “two-close” loan). During construction, you typically make interest-only payments on the funds you draw. Once the project is finished, the loan converts to a standard mortgage with principal and interest payments.
What is the typical down payment for a new construction apartment loan?
The down payment for a new construction apartment loan is typically higher than for an existing property because lenders consider it a riskier investment. While it can vary based on the lender and your financial profile, you should generally expect a down payment of 20% to 30% of the project’s total cost. The more you put down, the better your chances of securing a lower interest rate and more favorable loan terms.
What are the standard fees associated with new construction apartment loans?
Beyond the interest rate, you can expect several fees. The most common include:
- Origination fees: A fee charged by the lender for processing the loan, typically 1% to 2% of the loan amount.
- Appraisal fees: A fee for a professional appraisal of the property’s estimated value after construction.
- Inspection fees: Fees for on-site inspections conducted at various stages of the project to ensure construction is progressing according to the plan.
- Title insurance: Protects the lender (and sometimes the borrower) against any issues with the property’s title.
- Legal and administrative fees: Costs for preparing and reviewing legal documents.
How long are the repayment terms for a new construction apartment loan?
The repayment terms are typically split into two phases. The initial construction period is a short-term loan, usually lasting from 12 to 24 months. During this time, you often make interest-only payments on the funds that have been disbursed for construction. Once the construction is complete, the loan will either be paid off by a separate, long-term mortgage or, in the case of a construction-to-permanent loan, it will convert to a permanent loan with a fixed repayment schedule, often over 15 to 30 years.
What is a mezzanine loan?
A mezzanine loan is a hybrid form of financing that combines debt and equity. It’s a “middle layer” of capital that fills the funding gap between a developer’s equity and the senior debt from a traditional lender. It’s subordinate to the senior debt, meaning the senior lender gets paid first in the event of a default. Mezzanine loans are typically used to fund a significant portion of the total project cost, can have higher interest rates, and often include an equity stake for the lender.
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