Best Small Apartment Loan Options for Borrowers

For wholesale lenders, brokers, and referral partners, small apartment loans present a growing opportunity to serve real estate professionals in need of financing. Small multifamily properties—ranging from duplexes to buildings with up to 12 units—are increasingly in demand as more investors seek rental income and long-term wealth-building strategies.

Wholesale lenders play a crucial role in connecting borrowers with financing solutions tailored to these smaller properties. With loan amounts typically ranging from $1 million to $7 million, small apartment loans fall within the “small loan” category of the multifamily finance industry. These loans differ from large-scale commercial loans and require specialized knowledge to structure the best deals for borrowers.

Below, we’ll explore the best loan options for small apartment financing, highlighting key programs and how wholesale lenders can effectively position these products to meet borrower needs.

Freddie Mac Small Balance Loans (SBL)

One of the most well-known financing options for small multifamily properties is the Freddie Mac Small Balance Loan (SBL) program. Designed for properties with up to 50 units, this program provides flexible financing solutions for borrowers seeking to invest in small apartment buildings. For wholesale lenders, Freddie Mac SBL loans are attractive due to their competitive rates, streamlined processing, and ability to finance properties across different markets.

Key Benefits for Wholesale Lenders:

• Loan Amounts: $1 million to $7.5 million
• Flexible Terms: Fixed-rate, floating-rate, and interest-only loan options available
• Market-Based Pricing: Loan terms vary depending on the property’s location and market conditions
• Borrower Requirements: A net worth equal to 100% of the loan amount and liquidity of 10% of the loan amount

Wholesale lenders can use Freddie Mac SBL loans to serve clients looking for competitive financing in high-demand rental markets. These loans also allow referral partners and brokers to offer borrowers a government-backed loan program with favorable rates compared to private lending.

Fannie Mae Small Loans

Similar to Freddie Mac’s program, the Fannie Mae Small Loan program is another top choice for financing small apartment buildings. This program allows for loan amounts starting at $750,000 and up to $6 million, making it a great option for smaller properties.

One major advantage of Fannie Mae Small Loans is their 30-year fully amortizing term, which provides borrowers with long-term stability and predictable payments. Unlike Freddie Mac, Fannie Mae’s program extends to manufactured housing communities and housing cooperatives, offering broader financing opportunities.

Key Benefits for Wholesale Lenders:

• Loan Amounts: $750,000 to $6 million
• Loan Terms: 5-30 years fixed-rate, hybrid ARM, or floating-rate options
• Flexible Amortization: Full-term interest-only options available
• Borrower Requirements: Net worth equal to 100% of the loan amount; liquidity equal to six months of mortgage payments

For wholesale lenders and brokers, Fannie Mae Small Loans present an opportunity to help borrowers secure affordable long-term financing with competitive rates. This program is especially useful in smaller, secondary, or emerging markets where Freddie Mac SBL loans may not be available.

Banks and HUD/FHA Multifamily Loans

While traditional bank loans and HUD/FHA multifamily loans are available for small apartment properties, they come with stricter credit requirements and longer closing timelines.

Bank Loans:

• Typically require higher down payments (20-30%)
• Stricter underwriting guidelines than agency-backed loans
• May offer competitive rates but less flexibility for small investors

HUD/FHA Multifamily Loans:

• Government-insured loans for apartment buildings
• Offer low interest rates and high LTV ratios (up to 85%)
• Lengthy approval process (6-10 months)
• Require extensive borrower experience and financial documentation

While HUD loans provide long-term stability, they are less suitable for fast-paced wholesale deals. Wholesale lenders may still consider these loans for borrowers with large-scale multifamily portfolios looking for permanent financing.

Commercial Hard Money Loans for Multifamily Properties

For borrowers who need fast, flexible financing, commercial hard money loans provide an alternative to traditional lending. These loans, offered by private lenders rather than banks, focus on property value rather than borrower creditworthiness.

Key Features of Commercial Hard Money Loans:

• Loan Terms: 1-3 years, making them ideal for short-term holds or value-add projects
• Loan-to-Value (LTV): Typically between 65%-80%
• Interest Rates: Higher than traditional loans, ranging from 8%-15%
• Speed: Approvals and funding in as little as two weeks

For wholesale lenders, brokers, and referral partners, hard money loans are a valuable tool for borrowers who:

• Need quick financing for a small apartment purchase
• Are investing in value-add or fix-and-hold properties
• Have less-than-perfect credit but strong property equity

Because of their speed and flexibility, commercial hard money loans are frequently used by borrowers in competitive markets where timing is crucial.

How Wholesale Lenders Benefit from Small Apartment Loans

Wholesale lenders, brokers, and referral partners can capitalize on small apartment loan products by offering tailored financing solutions to their borrowers. Small apartment loans provide several benefits, including:

1. Higher Demand for Multifamily Housing:

• The rising demand for rental properties has increased interest in small apartment investments.
• Wholesale lenders can connect borrowers with the best loan options for long-term wealth building.

2. Diverse Loan Options for Borrowers:

• Whether borrowers need government-backed financing (Freddie Mac/Fannie Mae) or private lending options (hard money), wholesale lenders can match them with the best product.
• Offering multiple financing solutions increases borrower retention and satisfaction.

3. Faster Closings with Private Lending:

• Borrowers seeking rapid funding for fix-and-hold or wholesale deals can benefit from hard money and bridge loans.
• Wholesale lenders specializing in alternative financing can close deals much faster than banks or HUD programs.

4. Referral and Broker Growth Opportunities:

• Brokers and referral partners who specialize in small apartment lending can expand their client base and increase revenue.
• By partnering with private lenders, referral networks can attract borrowers who need fast and flexible financing.

RCN Capital: Your Partner in Small Apartment Financing

As a leading private lender, RCN Capital specializes in providing wholesale lenders, brokers, and real estate professionals with tailored financing solutions for small apartment properties. Whether your borrowers need short-term bridge loans, fix-and-flip financing, or long-term rental loans, RCN Capital offers competitive terms and fast closings to help you grow your lending business. Connect with us today to discuss our real estate financing solutions.