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Requirements When Financing Apartment Buildings.

For many investors, nowadays, they are concentrating on commercial real estate. Commercial properties are intended for businesses or income generation. These commercial properties are for income generation or businesses. This has made more investors to choose commercial properties. The different types of commercial real estate include office buildings, retail buildings, restaurants, multifamily buildings, apartments, and hotels. The investors should, however, have a good understanding of commercial real estate investment before making the investment.

Apartment buildings are part of commercial properties. In this article, however, the focus will be on financing apartment investments. First, owning an apartment building would be a great investment. If you want to purchase an apartment building, you would look for an acquisition loan. It is, therefore, important for the investor to possess sufficient information regarding financing requirements. However, apartment buildings are commercial properties and, therefore, the financing requirements are for commercial loans.

However, it is important for the investor to involve a respected lender or commercial brokerage firm such as Assets America. A respected lender will be the best thing in financing a commercial property. The good thing about an experienced commercial lender or broker is that their network has other trusted lender that include private lenders, banks, and institutional lenders. Because of this, investors will easily find great financing deals for their investments.

Commercial real estate loans are different from residential loans. Commercial loans requirements are also different from residential loans. When the investor possess a good understanding of financing commercial property, the process becomes easier and less intimidating. The following are, however, some of the things the borrower need to understand when seeking financing for commercial real estate.

1. Available mortgage options.

First, the investor needs to understand that commercial loans are different from residential mortgages. Commercial loans are not backed by government agencies such as Fannie Mae and Freddie Mac. Compared to home loans, their commercial loans interest rates is usually higher. Also, commercial loan terms differ from that of residential properties. For instance, the commercial loans terms will range from 5-20 years while that of residential start can go up to 30 years. There are, however, different commercial loan options for the investor to choose from.

2. Consider loan-to-value ratio.

Lenders often consider the loan-to-value ratio when financing commercial properties. LTVs are used to measure the loan value against the property value. It is obtained when the loan amount is divided by purchase price. Lenders approve commercial loans with LTVs that range between 65-80 percent.

3. Debt service coverage ratio.

DSCR is a measure by the lender on the ability of the property to service its debt. In this case, net operating income is usually compared to mortgage debt service. For proper cash flow, DSCR should be at least 1.25.

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