Growing your multifamily rental portfolio? Five key financing sources to know

There are many options when you want to finance your apartment property. Most people immediately think of banks when they think of financing, but the market has evolved to include many other sources. You need to know all your options to avoid leaving money on the table. Picking the right financing option is critical to your success. We’re here to help you understand your options so you can determine the best one for your financing needs.

Five primary financing solutions

Banks

We’ll start with banks because bank lending has historically been the most common way to secure a loan. Banks provide multifamily loans throughout the U.S., each with a lending program unique to the scope of their business practice. Banks are licensed to provide loans only within certain regions, and unlike the other sources, they typically require recourse, which means your personal assets are on the line. There are also borrower exposure limits that must be taken into account. But overall, if you’re looking for a local lender with favorable rates and are comfortable with recourse, banks might be a viable financing option.

Fannie Mae & Freddie Mac (aka “The agencies”)

When we say “agency lending,” we’re talking about Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. These two are lesser-known players in the small balance space, but they’re quickly gaining more market share. Fannie Mae funded $4.7 billion in small-balance multifamily loans in 2024.

Many people don’t know Fannie Mae and Freddie Mac offer desirable financing terms for smaller apartment properties, including 5-30-year loan terms, 30-year amortization, non-recourse, maximum leverage, floating, fixed, and hybrid rate options, and prepayment flexibility. They lend across a variety of property types, including manufactured housing, affordable, non-contiguous properties, mixed-use, conventional, and green.

Because their mission is to help provide workforce housing, the agencies have a government mandate that requires them to provide liquidity to the market at all times – regardless of economic or geopolitical factors. Pricing may change circumstantially, but unlike other players that may pull back in the face of uncertain market conditions, Fannie Mae and Freddie Mac will remain consistent.

To secure an agency loan, a prospective borrower must go through an authorized agency partner known as a Seller/Servicer. There are a limited number of agency partners that you can work with, Walker & Dunlop being one of the top lenders. This is an attractive program if your property qualifies.

Life insurance companies

Life insurance companies are another option for financing your small apartment property with their longer loan term, non-recourse options, and competitive interest rates. However, they are less competitive when it comes to leverage and cash-out refinancing. They are also more selective and gravitate toward higher-quality assets in major markets.

Commercial mortgage-backed securities (CMBS)

CMBS are fixed-income investment products backed by mortgages and provide liquidity to real estate investors and commercial lenders. CMBS loans are available to many borrowers—including those that may be excluded from traditional lenders due to poor credit, previous bankruptcies, or strict collateral or net worth requirements. They offer high-leverage, non-recourse loans. CMBS loans can be difficult to pay off early, and the post-closing requirements are more stringent.

FHA/HUD (Housing & Urban Development)

HUD offers major benefits, including non-recourse, high leverage, longer term, attractive pre-payment penalty, and low rates. While HUD loans have their benefits, they are often misunderstood. People mistakenly believe that loans are only available for low-income housing, nonprofits, and affordable housing projects. This is not the case, and many market-rate borrowers may be missing out.

Know your options

Banks are considered a primary lending source in the market today, but the other options we’ve covered may better align with your investment strategy. It’s critical to know your options, or you may be leaving money, flexibility, or better terms on the table. For more information or to see more of our capabilities, visit our website.