Buying your first apartment building

The decision

Your first apartment building is a commercial loan, not a home loan. The lender underwrites the building’s income, then you. Two choices matter most: which lender type to start with, and how much cash to bring once the coverage test has done its work.

What lenders check on a first-time owner

What they look at	Why it matters for you
In-place income, from a rent roll and trailing statements	The building has to carry the loan on its own
The lender’s own NOI	NOI = annual gross income less operating expenses2, with a vacancy factor and a replacement reserve, so it comes in below the seller’s figure
Purchase value	On an acquisition, LTV uses the lower of the purchase price or the appraised value3, so overpaying lowers your loan
Your liquidity after closing	Reserves show you can fund a vacancy or a roof
Your net worth and credit	Recourse lenders lean on it; non-recourse lenders still screen it
Who manages the building	The most common reason first-time buyers get a smaller loan or a higher rate
Property condition and environmental	Appraisal, condition report, and an environmental screen

Lender types ranked for a first purchase

1. Community bank. Banks and thrifts hold 29% ($668 billion) of multifamily debt⁴, and community banks are the most common first lender because they can meet you, see the building and weigh a local manager. Expect a personal guarantee and a loan that matures before it amortizes.
2. Credit union. Similar to a bank if you are a member. Part 723 sets no fixed LTV cap; each credit union's board policy must set LTV limits by collateral type⁵.
3. Fannie Mae small loan. The best long-term loan for a stabilized building: up to $9 million nationwide⁶, 80% max LTV⁶, 1.25x min DSCR⁶. Recourse: Non-recourse, with standard carve-outs for fraud and bankruptcy⁶. Fannie Mae also lets smaller loans use lighter third-party reports: Streamlined inspection and environmental screening (ASTM E-1528-14) instead of full reports⁶. The catch for new owners is sponsor review: lenders want to see net worth, liquidity and some ownership experience.
4. Non-bank DSCR loan. Faster and lighter on personal documents, priced above banks. Read the prepayment terms closely.
5. Freddie Mac Conventional Small. Strong terms, but loans are generally $2 million to $10 million⁷.
6. FHA 223(f). Leverage of 87% LTV⁸ on market-rate property and a fully amortizing fixed rate, but HUD’s process is slow for a purchase contract, and it needs 5 or more units⁹.

Rates fall as buildings get bigger. HMDA’s 2025 data show a 6.75% median rate on 5-24 unit properties¹ against a 6.35% median rate on 25-49 unit properties¹. A small building costs more to underwrite per dollar lent, so lenders charge more.

Worked example: a 12-unit purchase

Illustration. A 12-unit building is under contract at $1,800,000. Underwritten NOI is $117,000, a 6.5% cap rate on the price.

Bank terms (illustration)	Amount
75% LTV request	$1,350,000
Debt service at 6.75%, 25-year amortization	about $111,900 a year
Coverage on that loan	about 1.05x, which fails a 1.25x test
Loan the NOI supports at 1.25x	about $1,129,000 (63% of price)
Down payment	about $671,000
Closing costs (illustrative 3% of price)	about $54,000
Cash to close before reserves	about $725,000

At an illustrative 6.25% on a 30-year agency amortization, the same NOI supports about $1,267,000 at 1.25x, roughly 70% of the price. That is about $138,000 less cash than the bank loan, which is the real value of long amortization on a small building. Try your numbers in the DSCR calculator.

Timeline and documents

Ask for a contract long enough to cover financing: the lender orders the appraisal and third-party reports after you sign the term sheet, and each takes time. Small bank loans can move faster. $500,000 or less: a bank may use an evaluation instead of a full appraisal¹⁰.

• Purchase contract, seller’s rent roll and trailing twelve-month statement, plus the last full year.
• Copies of leases and a rent-ready estimate for vacant units.
• Your personal financial statement, schedule of real estate owned (even if short), bank statements and tax returns.
• Your entity documents. Most lenders want a single-purpose LLC to hold the building.
• Property management agreement or résumé of your manager.
• Insurance quote, and the tax bill as it will be reassessed after your purchase.

Pitfalls for first-time buyers

1. Trusting the seller’s NOI. Rebuild it with real taxes after sale, real insurance quotes, a vacancy factor and a reserve.
2. Sizing your offer on LTV. Coverage sets the loan at today’s rates. Run DSCR before you sign.
3. Draining your cash at closing. Reserves are underwritten, and you will need them in year one.
4. Ignoring the loan’s maturity. A bank loan that balloons early hands you a refinance on someone else’s schedule. See refinancing a maturing balloon loan.
5. Picking the lowest rate over the right prepayment. If you might sell or refinance within a few years, a step-down or open period can be worth more than a small rate cut.