If you’re considering an apartment loan, you have many options. Banks might be the first thing that comes to mind, but there are a lot of other financing companies out there.
Whether you’re looking to purchase an apartment or want to refinance your current investment, it’s important to choose the right financing for your needs.
Freehold or leasehold?
Buying a flat or apartment is an exciting prospect for many people. But it can also be confusing. Whether you’re a first-time buyer or moving up the property ladder, deciding on freehold or leasehold can help you get the most out of your home.
A leasehold property is the ownership of a house or flat held by a landlord called a freeholder, who owns the land on which the building stands. This means you have the right to live in your property for a specific period of time, usually a number of years.
It’s important to understand how long you will own a leasehold property before making a purchase. This will help you decide if a freehold is the best option for your needs and budget.
If you’re not sure, ask your estate agent or solicitor to find out for you. They should be able to do this by using the land registry or the Land and Property Index.
In most cases, it will depend on the specific lease agreement you have with the freeholder. You may have the opportunity to extend the lease if you want. This is a great option for those who plan to stay in the property for a long period of time, or are living in a location with limited freeholds available.
Another benefit of a leasehold is that it can be cheaper than a freehold, especially for new-build apartments. This is because you aren’t buying any land with your mortgage, and so your loan-to-value (LTV) ratio will likely be lower.
Typically, leaseholds last between 125 and 999 years, but you can sometimes get an extension. The cost of extending a lease can be high, however, so it’s important to do your research before making a purchase.
As a leaseholder, you’ll have to pay ground rent to the freeholder for the use of the property. This pays for the maintenance and repair of the buildings and communal areas, like hallways and gardens.
The biggest drawback of a leasehold is that you aren’t really the owner of your home and it can be difficult to make changes to the property. For example, if you want to put up a satellite TV dish or move internal walls, you must have the permission of the freeholder within the terms of your lease.
Number of storeys
The number of storeys in an apartment can be a bit of a mystery to prospective homebuyers. In fact, the number of dwellings approved in four or more storey apartment buildings has increased significantly over recent years. Nevertheless, the sheer number of apartments being built doesn’t necessarily translate to better prices.
Fortunately, we can help you figure out which apartment mortgage best suits your needs and budget. Our team of experts can offer you the best mortgage deals available for your new apartment home or commercial property. So, give us a call or send us an online enquiry today. We look forward to helping you on your way to a stress-free and rewarding mortgage experience. Alternatively, you can also fill in our form for a free pre-approval and we will contact you. We’ll even send you a copy of our free guide to Buying an Apartment. Our free guide will provide you with everything from a basic understanding of the industry to advice on how to buy an apartment and how to get the most out of your investment.
Leasehold term
The leasehold term is a crucial aspect of getting an apartment mortgage. It will affect your ability to borrow and the property’s resale value in the long run. It will also impact the fees you pay to the landlord, such as ground rent and service charges.
Typically, a leasehold property will be for a fixed number of years. During that time, the owner will have the right to live in and use the property. They will be obligated to pay the ground rent and contribute to the costs of maintaining, insuring and managing the building.
When a leasehold estate expires, the ownership of the property reverts to the freeholder. This is often the case for flats and maisonettes but can also apply to houses, particularly if they are sold as a leasehold estate.
It is possible to extend the leasehold term, if the freeholder agrees, but this will usually be a costly process. The longer the leasehold term, the more stable the property will be in terms of its resale price.
A short leasehold can cause a decline in the value of the property because it’s more likely that the owner will need to sell at some point, and the market will be less interested in buying the leasehold interest at that time. It’s therefore a good idea to avoid buying properties that are on leaseholds with less than 90 years left in them.
Lenders may require a higher deposit for leaseholds than they would for fee simple properties. They will also want to check that the freeholder has a good credit rating and is in a good financial position.
There are also other factors that can make the mortgage process difficult. For example, onerous ground rent charges and unchecked estate charges can mean that lenders may refuse to lend or charge more fees.
In addition, the leasehold property will be subject to any other liens or encumbrances that are on the land, such as those owned by the land owner, which can make it harder for the lender to recover their money in the event of a default.
Lenders’ criteria
Like all real estate mortgages, apartment loans are based on the property’s value and borrower financial strength. Typically, a lender will require at least 20% down payment to approve an apartment mortgage, with additional funds required if the loan is for a new construction or refinanced from an existing loan.
Lenders also consider debt-to-income ratios, which measure how much of your monthly income goes toward paying off debt and how much is left for a down payment. The ideal ratio is 36% to 45%, says David Tassone, vice president of finance at Bank of America Commercial Mortgage.
Borrowers may need to provide additional qualifying income, such as rental income, to reduce their DTI. Additionally, some lenders may require a physical needs assessment or property condition report for properties that are in need of repairs or replacement.
The type of loan you get will affect your interest rate, as well as whether or not it will be a fixed or adjustable mortgage. Generally, long-term loans come with higher interest rates than shorter term ones. In addition, you may need to pay a prepayment penalty on a loan that you plan to sell, or if you refinance before it has reached the end of its term.
Apartment building loans, or multifamily mortgages, are available in standardized types that lenders can sell to Fannie Mae or Freddie Mac, as well as customized portfolio loans that they keep on their own books. Standardized loans are backed by Fannie Mae or Freddie Mac and have more strict guidelines than portfolio loans, which often require less cash down.
Some borrowers who are buying an apartment complex with only five or fewer units can get an FHA multifamily loan insured by the U.S. Department of Housing and Urban Development (HUD). These apartment loans are a good option for investors looking to purchase apartments in more affordable areas, but they have a reputation for being slow and tedious with strict qualification standards.
Other apartment financing options include CMBS, or commercial mortgage backed securities, which can be a great source of debt for investors. These CMBS loans are pooled and securitized, then sold on the secondary market. These loans are usually non-recourse, but you will need to have your CMBS loan serviced by a separate company.