Commercial Multifamily Loans: The Apartment Financing Options You Should Know About

Part of Are Fannie Mae Loans Non-Recourse for Multifamily?

Table of Contents

1. Commercial Multifamily Loan Requirements
2. Typical Multifamily Loan Terms
3. How are most Apartment Properties Financed?
4. Commercial Mortgage Calculator
5. Why You Should Want an Interest Only Multifamily Loan
6. The Different Types of Multifamily Commercial Real Estate Loan Options Available
7. Frequently Asked Questions About Commercial Multifamily Loans
8. Apartment Financing Options - Conclusion

Commercial multifamily loans aren't a single product. They split into seven distinct products that an operator picks between at the LOI stage, and the choice shapes the entire economic life of the deal: recourse posture, term length, amortization, interest-only window, prepayment penalty, and ultimately how much of the LP's cash-on-cash flows through during the value-add execution years versus stacking up at refi or sale. The right product on the right deal is one of the most consequential calls a sponsor makes on any acquisition.

The seven products are Fannie Mae (DUS platform), Freddie Mac Conventional, Freddie Mac Small Balance Loan (SBL), bridge debt, balance-sheet bank loans, CMBS conduit, and HUD/FHA-insured multifamily. The first three are agency. The other four are non-agency. The conventional wisdom that "most apartments are financed by Fannie or Freddie" is broadly true for stabilized institutional multifamily, but it skips the actual operator question: when does the business plan force you out of the agency box, and what's the next-best lane when it does?

This guide walks the seven products, the underwriting box each lender actually closes on, and the framework Willowdale uses to pick the right lane at acquisition.

Commercial Multifamily Loan Requirements

The underwriting box for a commercial multifamily loan is narrower than retail readers often expect, and the constraints sit at the level of the asset, the sponsor, and the loan structure all at once. On an agency-eligible commercial multifamily acquisition, the minimum loan size is typically $750,000, the maximum LTV is 80% on a new purchase or 75% if the sponsor wants cash-out proceeds at refinance, and the loan amortizes on a 30-year schedule regardless of the actual term (commonly 5, 7, 10, 12, 15, 20, or up to 30 years). The product is non-recourse to the sponsor in the standard structure, with standard bad-boy carve-outs (fraud, voluntary bankruptcy filing, environmental misrepresentation).

At the sponsor level, the lender wants a personal credit score of at least 680, a net worth equal to or greater than the loan amount, and post-closing liquidity equal to 9 to 12 months of mortgage payments held in liquid form. The personal income side is meaningfully different from residential lending: no tax returns and no debt-to-income tests, because the loan is sized to the property's cash flow, not the sponsor's W-2. The property side requires a minimum 1.25x debt service coverage ratio on stabilized in-place income, and 90% occupancy maintained for at least 90 days before close. On mixed-use product, up to 35% of the square footage can be commercial without disqualifying the loan from the multifamily program. These aren't soft preferences. They're the lender's binary go / no-go on whether the loan closes.

Typical Multifamily Loan Terms

The Fannie Mae DUS (Delegated Underwriting and Servicing) loan is the workhorse product on stabilized commercial multifamily, and the term sheet is recognizable across deals because the program runs to a consistent set of standards. On a typical conventional stabilized acquisition, the terms run:

• Minimum loan size $750,000, no maximum. The lower bound is what separates Fannie DUS from Freddie's Small Balance product, which is the right lane for smaller deals.
• Maximum LTV 80% on a new purchase, 75% on a cash-out refinance. The 80% ceiling shapes how much LP equity the sponsor has to raise on top of debt.
• Term options of 5, 7, 10, 12, 15, 20, or up to 30 years fixed. Most institutional multifamily syndications pick 7 or 10 years to match a 5-to-7 year hold with refinance optionality before maturity.
• 30-year amortization regardless of term. Light debt service relative to a 25-year schedule, which is structurally why agency multifamily distributes more cash-on-cash than the same deal financed bank balance-sheet.
• Interest-only periods of 1 to 5 years available. This is what the sponsor fights for on a value-add deal. More on the operator value of IO further down.
• Non-recourse with standard bad-boy carve-outs. Sponsor's personal assets aren't exposed absent fraud, voluntary bankruptcy filing, or environmental misrepresentation.
• Minimum sponsor credit score 680, net worth equal to the loan amount, liquidity equal to 9 to 12 months of mortgage payments. The liquidity test is one of the most overlooked constraints, particularly for sponsors stacking multiple deals.
• Minimum 1.25x DSCR on stabilized in-place income. If the asset can't hit 1.25x on day one, agency won't size. The deal goes to bridge.
• 90% occupancy for 90 days before close. This is the threshold that pushes value-add and reposition acquisitions out of agency at signing.
• Up to 35% mixed-use commercial space allowed. Above that and the deal is underwritten as commercial, not multifamily.
• Yield maintenance or declining prepayment penalty. Yield maintenance is the more punitive structure if rates have fallen since origination, and it's one of the reasons short-hold sponsors don't go agency.
• Loan assumable with a 1.00% fee. A buyer can take over the existing loan at sale, useful when rates have moved against the market and the seller's coupon is below current market.
• Affordable housing programs and student/senior housing eligible. Fannie will lend on student housing and independent senior living under the same DUS program.

Closings typically take 30 to 90 days from loan inception. The lender runs Desktop Underwriting, a scorecard process that verifies the borrower and the loan meet Fannie's current standards on DSCR, credit, and LTV. The lender on the other side has to be DUS-approved (a separate license from being a Fannie-approved seller-servicer), and the loan can't be co-funded by a partner outside Fannie or Freddie. Apartment loans run through either FNMA or FHLMC as the takeout balance-sheet, not both at once.

How are most Apartment Properties Financed?

Most institutional stabilized multifamily ends up financed through Fannie Mae or Freddie Mac, and the reasons are structural rather than ideological. The GSE guarantee anchors agency rates 50 to 150 basis points inside the same loan from a bank balance-sheet or CMBS conduit across the cycle. The non-recourse posture insulates the sponsor's personal balance sheet. The 30-year amortization keeps debt service light relative to property cash flow. The 1-to-5-year interest-only period preserves LP cash-on-cash during the value-add execution window. The supplemental loan structure on Fannie DUS lets a sponsor pull additional proceeds out at year two or beyond as NOI grows without refinancing the senior.

The market structure reflects that operator logic at scale. Fannie and Freddie together originate the majority of US multifamily debt by dollar volume in any given year. The non-agency products (bridge, CMBS, bank, life-co, debt funds) take what agency can't underwrite: assets below the 90% occupancy threshold, heavy repositions, short holds where yield maintenance breaks the math, or deals where the sponsor doesn't qualify for an agency loan in the first place. Agency is the default. Non-agency is the answer when the deal forces it.

Commercial Mortgage Calculator

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Why You Should Want an Interest Only Multifamily Loan

The operator value of an interest-only period is that it preserves cash flow during the value-add execution window, when the sponsor is doing the work to grow NOI but the lift hasn't fully materialized yet. On a 5-year Fannie DUS loan with 2 years of IO at the front, debt service through the first 24 months is the coupon only, no principal paydown. That difference in monthly debt service flows directly into operating cash flow, which is what the LP gets distributed against the preferred return during the hold's most operationally intense stretch.

Without an IO period, principal amortization starts eating into operating cash flow on day one, before any rent burnoff or expense optimization has had time to land. On a value-add multifamily deal, the first 18 to 24 months are when capex is being deployed, units are being turned, and stabilized NOI is being built. Forcing principal amortization during that window can starve LP yield and push cash-on-cash distributions below the contractual preferred return, which the sponsor either has to accrue against future cash flow or close the gap from sponsor pocket. The IO period buys the sponsor and the LPs the runway to execute the business plan before debt service compounds.

The Different Types of Multifamily Commercial Real Estate Loan Options Available

Commercial multifamily lending splits into seven products that cluster around two question pairs: agency or non-agency, and recourse or non-recourse. The seven are Fannie Mae's DUS platform, Freddie Mac Conventional, Freddie Mac Small Balance Loan, bridge debt, balance-sheet bank loans, CMBS conduit, and HUD/FHA-insured multifamily. Six of the seven are non-recourse in their standard structure; the bank loan product is the recourse exception. Five of the seven are agency-issued or agency-securitized; bridge, bank, and CMBS are the three non-agency lanes operators actually use at institutional scale.

The selection framework is the same on every deal: start with the business plan, screen against the agency underwriting box, and step down through the non-agency products in order of how much business-plan friction each one adds. The product that closes is the one whose underwriting box can absorb the deal at the LOI's terms.

Agency Loans (Fannie Mae or Freddie Mac)

The agency category houses three products operators encounter at institutional scale: Fannie Mae DUS, Freddie Mac SBL, and Freddie Mac Conventional. All three are non-recourse to the sponsor in their standard structure, with bad-boy carve-outs on fraud, voluntary bankruptcy filing, and environmental misrepresentation. All three require the property to be stabilized at 90% occupancy for 90 days before close, run on a 30-year amortization regardless of fixed term, and offer interest-only periods of 1 to 5 years at the front. The differences sit at the loan-size threshold and the sponsor experience requirement.

Fannie Mae DUS is the default product on conventional stabilized multifamily above $750,000 in loan size and runs in fixed terms of 5, 7, 10, or 12 years amortized on a 30-year schedule. Floating-rate paper is available with a required rate-cap purchase on top, and the IO window can run as long as 5 years on the most-favored credits.

Freddie Mac Small Balance Loan (SBL) is the sub-$7.5 million lane, built to compete with bank balance-sheet at the smaller end of the institutional multifamily market and structured to be accessible to first-time multifamily sponsors. The maximum LTV is 80% on a new purchase, with limited or no prepayment penalty depending on the term structure. Closing is faster than Fannie DUS on smaller deals because the underwriting is more standardized.

Freddie Mac Conventional is the larger-loan complement to SBL, sized at $7.5 million and above. The product mirrors Fannie DUS on structure: 5, 7, or 10-year fixed terms, IO up to 5 years, 30-year amortization, 80% maximum LTV on a new purchase, and non-recourse with bad-boy carve-outs. The sponsor requirement is more meaningful than SBL: documented multifamily ownership and operating experience is required to clear underwriting, which is why first-time sponsors typically end up in SBL before they graduate to Conventional. Fannie or Freddie Conventional sized to the same deal price almost identically across the cycle, and the operator's choice between them is often driven by relationship and quoted execution timing rather than economics.

Closings across all three agency products run 30 to 90 days. The lender must be DUS-approved (Fannie) or Optigo-approved (Freddie), and the loan can't be co-funded with a non-agency partner.

Bridge Loans

Bridge debt is the non-agency answer when the asset can't clear an agency DSCR test on day one. Typical terms run 2 to 3 years with one or two extension options, sized to total cost rather than to stabilized value, with a maximum LTC commonly between 75 and 85% (including the capex budget rolled into the loan basis). The product is non-recourse in most cases but with thicker bad-boy carve-outs than agency, and the interest-only period can run the full term rather than the 1-to-5-year window agency offers.

The use case is the heavy reposition. An asset under 90% occupancy can't qualify for Fannie or Freddie at acquisition because there isn't enough stabilized in-place NOI to size the loan to 1.25x DSCR. The bridge lender underwrites the same property on a forward NOI basis, sizes against the stabilized pro forma, and bridges the gap to the eventual agency refinance once the business plan executes. The trade-off is pricing: bridge debt prices 200 to 450 basis points over SOFR on the floating-rate version, runs 1 to 3 points of origination and exit fees, and carries shorter maturities that pressure the sponsor to execute on schedule. A deal that takes 18 months longer than projected to hit stabilization can be killed by the rate spread alone if rates have moved against it before the agency takeout closes.

Bank Loans

Balance-sheet bank loans are the recourse lane in commercial multifamily, and the recourse posture is the central distinction from agency, bridge, and CMBS. On a regional or community bank loan, any sponsor with more than 20% ownership in the deal signs a personal guarantee that runs the full term of the loan. The product is most commonly seen on smaller deals (sub-$10 million), value-add bridge takeouts where the next-step agency refi hasn't been arranged, or first-acquisition deals where the sponsor doesn't yet have the multifamily track record to clear agency underwriting.

Willowdale has never closed a Willowdale deal on bank balance-sheet debt, though we have had deep conversations with local Middle Georgia regional banks across multiple deals before defaulting to other structures. The pattern is consistent across the conversations: regional and community banks underwrite more conservatively on LTV and DSCR than agency does (typically a step lower on LTV and a step higher on DSCR), and they don't like to give out the interest-only periods that protect LP cash-on-cash through a value-add execution window. The combination tightens the LP yield profile enough that agency wins the comparison on every stabilized deal we've underwritten.

That said, bank balance-sheet has a real role in the market. On the smaller end (sub-$5 million single-property acquisitions where Freddie SBL is the next-closest lane), bank product can close faster, with less standardized underwriting, and on borrower-quality factors that don't fit a standardized agency scorecard. The relationship-driven posture of the regional bank lane is one of its structural advantages for sponsors who can absorb the recourse exposure.

CMBS Loans

CMBS (Commercial Mortgage-Backed Securities) conduit loans are the non-agency lane between bridge and agency on rate and term. The originating lender pools the loan with other commercial mortgages, securitizes the pool into bonds, and sells the bonds on the secondary market. The borrower-facing terms are 5, 7, or 10 years fixed, 25 or 30-year amortization, non-recourse with bad-boy carve-outs, and pricing 50 to 150 basis points over agency on the same deal across the cycle.

CMBS sits in the multifamily lending stack but is meaningfully less common than agency for institutional multifamily syndications, for a specific structural reason: prepayment. CMBS loans use defeasance for prepayment, which requires the borrower to substitute a portfolio of Treasury securities matching the original loan's debt service rather than simply paying a penalty. Defeasance is economically expensive when rates have fallen since origination, operationally heavy to execute, and adds a layer of servicing and master/special-servicer dynamics that don't exist on agency. CMBS works for sponsors who can credibly commit to holding to maturity. It doesn't fit the 5-to-7 year hold with mid-period refinance optionality that defines the standard multifamily syndication structure.

HUD Loans

HUD/FHA-insured multifamily loans are the highest-leverage, lowest-rate lane available to commercial multifamily, but the structural friction makes them rare at acquisition. Under FHA guidelines, multifamily loans can only be originated by FHA-approved lenders, and the property must be initially financed by a conventional loan or already FHA-insured. The product requires a minimum of 5 separate units, each with its own kitchen and bathroom, and any rehabilitation must have taken place in the last 3 years.

Maximum LTVs run higher than Fannie or Freddie Conventional: 90% for Section 202 and 202/8 direct loans, 87% for projects with 90%-or-greater rental assistance, 85% for affordable housing, and 83.3% for market-rate. The amortization can run as long as 35 years or 75% of the estimated useful life of the physical improvements, whichever is less. The pricing is materially inside agency.

The reason most institutional acquisitions don't run on HUD is closing speed. HUD-insured loans commonly take 4 to 6 months from inception to close, which is too slow for a typical seller who needs certainty of execution on a competitive bid. HUD becomes the right lane in two scenarios: a refinance mid-hold when the sponsor has time to work through the closing window without seller pressure, or a creative-execution acquisition where the sponsor closes all-cash and immediately initiates the HUD refinance the day after close. Either path requires sponsor capital to bridge the timeline, but the long-term rate and amortization advantage can justify the carrying cost.

Frequently Asked Questions About Commercial Multifamily Loans

Apartment Financing Options - Conclusion

Picking the right commercial multifamily loan isn't a question of which product is best in the abstract. It's a question of which lane closes on the deal in front of you at the terms the business plan needs. Stabilized 90%-occupied assets default to agency for the same set of structural reasons across every cycle: non-recourse, lower rate, longer term, light amortization through 30-year schedules, and IO periods that preserve LP cash-on-cash through the value-add execution window. Heavy repositions default to bridge because agency won't underwrite the day-one NOI. Smaller deals default to Freddie SBL or, in some cases, balance-sheet bank. HUD becomes the answer on patient refinances. CMBS is rare on multifamily syndications because defeasance fights the hold profile.

The operator skill is screening the deal against the agency underwriting box first, then stepping through the non-agency lanes in order of how much business-plan friction each one adds. The product that closes is the one whose box can absorb the deal at the LOI's terms. The product that closes well is the one matched to the actual exit horizon, the actual capex draw schedule, and the actual recourse appetite of the sponsor team. That's the call. Everything else is execution.