new apartment construction finance

11 Replies

Lucky Me,

I've been in the home construction business for 20 years. Made enough $ to keep the ball rolling, but held in there long enough to end up with 43 acres of land with public utilities... now rezoned for 20 acres of new Apartments, 10 acres of Townhomes and a 12 acre nature preserve.

Does anyone care to suggest a development idea for this property. My accountant says to start small with a building or two and go from there. I checked into FHA financing for 136 unit apartment complex, the rate was good at 6% but the add-on costs of doing business with the Federal Government was rediculous.

Your suggestions and comments are much appreciated. Ed in Va.

Hey there the apartment complex sounds like a great idea, now when you say they were going to add-on a lot what do you mean? towards the interest rate? If so I would love to see what I can do for you as far as rates, and different programs depending on how long your looking for financing. So shoot me an e-mail and I can see what I can do for you.

I'd be interested in what the OP's take on the "add on costs" as well...For the type of project you are entertaining, the 221d program is really in a world of its own (as it pertains to borrower benefits)...

There loan programs that offer less "fuss", but loan to value allowances and rates will be of no comparison.


Scott Miller

Some of the cost associated with a 221d FHA include:
architect fee 1.5%
architect supervisor fee .4%
FHA exam fee .3%
FHA inspection fee .5%
Mortgage origination fee 2%
Mortgage placement fee .5%
legal fee 65k
organizational fee 45k
cost audit fee 12k
mortgagor construction accounting 45k

No doubt some of these cost are unavoidable. However 2 newer comp projects nearby recently used private placement, one with GMAC and one with JP Morgan.

Firstly, check with another FHA lender... :D ...fee schedules vary from lender to lender (FHA is explicit on allowable fees, and I would need to know more about the project to determine excessiveness).

I can appreciate the "sticker shock" but you need to view this from a "total cost of borrowing" standpoint; the majority of fees you listed are upfront and one time only (with the exception of the MIP).

You need to compute what the final interest rate (by combining interest rate and fee schedule) will be and do the same with other programs to determine which offers the lowest total cost of borrowing.

The fee schedule + interest rates from other lenders might surprise you...

My money is still on FHA for this type of project.


Scott Miller

I forgot to mention that you need appropriate value to:

- The extended construction period you get with FHA (up to 2 years)
- The extended amortization schedule (40 years)

With this said, there are several commercial programs that allow up to 90 LTV and one commercial hard money program that I am aware of that allows for 85 LTV.


Scott Miller

Thanks Scott ,

You're right about the stricker shock. I did start looking for financing from the FHA for this project, and will compare total cost with not only my local banker but with other commercial lenders. So there still are a lot of apples to apples to compare.

As you say, the fee schedule and interst rate from other lenders might surprise me as well. From what I had gathered from the publication Apartment Finance Today...The FHA would be hard to beat. But after getting a handle on the actual cost, that's when I went to the county and city clerk's office to get an idea of what other builder/owners around me did for finance. I'll do additional research, but so far I'm surprised no FHA on my closest comparable pojects.

One issue that came to light is the level of finance held on the two projects that interest me the most. In both cases the amount of outstanding finance exceeds the real estate tax assesment valuation of each property. Both properties were built around 1998 thru 2001.

Thanks for your input, your experience is helpful to me.

PS How did you get the smiles to move , I can't drag them?
Ed in Va.


Your welcome...I'll be here all week... :D

Why can't you find "FHA" amoung the pile of similar projects that have been funded recently in your part?

It's because FHA is not a lender...

P.S. Just point and click on the emoticons to need to drag and drop.


Scott Miller


Wouldn't a FHA 221d program loan have to originate from one of Fannie Mae's 24 DUS lenders? If so then a Deed Of Trust should indicate the amount of the loan recorded at the clerk's office, identifying the lender.

In the two cases I've looked at neither complex had a DUS lender. One was GMAC Commercial Mortgage , and the other was JP Morgan Chase Bank. Now the loan for the GMAC financing has a HUD Regulatory Agreement for Mortgage insurance. I wonder if this is seperate insurance policy apart from an actual FHA sponsored loan. :shock:


ED in VA.,

Once you have a rate quote from your finance choice, I would love to do a price comparison with you item by item line by line, showing you total cost of the loan for a 40 year period. My loan product will win 'hands down'

Ed in Va.,

I just joined the forum, so by now I suspect you're all situated. But I thought I'd let you know that I'm here, if you still need any help.

Chauncey and Scott make good points about the loans and the structure. And while the fees may seem a little high or provide the "sticker shock" that was mentioned, it might be helpful to look at it a little differently.

One of the overlooked points is that since you noted that you ended up with this land, rather than actually having to come out of pocket in the end, you are likely to be positioned to get cash back when the loan converts to permanent financing. And keep in mind, rather than having two sets of closings, you have the ability to go with the construction-to-permanent mortgage with 40-year, fixed-rate, low-interest financing. Additionally, you are NOT having to personnally guarantee the loan! The property can stand for itself.

If you decide to sell later on, the loan is assumable. So the Buyer can bring you the difference between the remaining loan amount and your sales price without having to go get a whole new loan.

Some fees that quoted are estimates as well and are likely to be brought down at the end. But it's better to get the "sticker shock" on the front side, rather than just before Closing. We'd love to get a PM if you or anyone else needs the help for new construction, acquisition, or refi's above $5MM. It's just a lot easier to qualify the project when you get into this range than under $2.5M where you've got to use your personal resources and credit.

We can try to get you more answers if you need them. We'll be glad to help.

You're right! People like me who've been investing in residential property for years don't realize how easy it really is to get into larger commercial properties and apartments. As long as they stay above $2.5 -$5 Million, the lenders are going to look at the project and not very much at the person as long as they put a team together. It's one of the BIG secrets to getting good financing!