Do you want to build a community for seniors, a new room for memory care, or even a building with senior homes and other uses? One big group of baby boomers is getting close to the age where they might need mental health and assisted living care. This means that there is a strong and growing need for senior housing.
The number of people living in places for independent, assisted, and memory care is projected to rise from the pandemic lows to 88% by 2025. New construction projects are taking longer to start because of strict loan rules and high interest rates. Now that there is an easy way for lenders to make money, they are interested in the “right projects” again. Builders with substantial budgets should begin constructing new homes immediately to meet the needs of the next generation.
We will show you how to secure a “new construction apartment loan” to finance your dream project. This blog offers valuable insights for anyone looking to bring their dream senior housing project to life, whether they are a seasoned developer or just starting.
What Is The New Construction Apartment Loans?
A new construction apartment loan is a short-term loan just for building a senior living center or another type of real estate development project from the ground up. Unlike a standard mortgage, which is used to buy an already-owned home, these “commercial construction loans” are short-term (usually 12 to 24 months) and give you the money you need to build.
Getting these loans is necessary to cover all the costs of building a new home, from buying the land to finishing the building. They are an essential part of “multifamily financing” for builders who lack sufficient funds to cover the entire job cost.
How Construction Loans Work: A Step-by-Step Guide
You don’t get a significant lump sum of cash when you take out these loans. The lender instead gives the money out in steps, which is called “draws.” This method is essential for keeping the project on track and within budget, as well as for managing risk.
In general, this is how the process goes:
- Initial Draw: The first draw often covers initial expenses like land acquisition loans, permits, and architectural plans.
- Staged Disbursements: You send a “draw request” to your lender when you hit certain construction milestones, like when the foundation is poured, the framing is put up, or the roof is put on.
- Inspections: The lender will usually send an inspector to the job site to make sure that the work was done according to the agreed plan before giving the money. This ensures that the loan money is used for its intended purpose.
- Interest-Only Payments: Not the full approved loan amount, but “interest-only payments” on the loan amount that has been paid so far during the construction phase. This helps you save money each month while the property is still being built and not generating income yet.
This method helps the lender control their risk and makes sure the project is going as planned. The construction loan is usually replaced with a long-term commercial mortgage, also called “take-out financing,” once the building is finished. The property is “stabilized,” meaning it has reached a specific occupancy rate and is generating income.
The Senior Housing Opportunity: Why Invest Now?
The market for senior living is growing at a speed that has never been seen before. This makes it a wise and timely investment. By 2060, the number of Americans aged 65 and up is expected to almost double, causing a strong and long-lasting need for high-quality senior living options. As baby boomers age, a shift in the population is driving a market poised for continued growth. As of the second quarter of 2025, 88.1% of senior living units were occupied, marking the 16th consecutive quarter of increased occupancy rates. The number of building starts is the lowest it has been since 2013; this means that demand is higher than supply, which is suitable for new projects.
It’s smart to invest in this area, whether you’re building an assisted living facility, a new memory care facility, or even a neighborhood of affordable housing for seniors. Each of these senior living complexes has its own needs and wants from the market. For instance, memory care facilities require specialized planning and construction to ensure the safety and health of their residents. At the same time, communities for independent living put an emphasis on features that encourage residents to live a busy life. To meet the needs of this growing and diverse population, projects need to be carefully planned, from the services for residents to the best places to put them.
Finding the Right Loan Options for Your Project
It can be challenging to secure business financing for senior housing. Still, different kinds of loans can be used for various types of projects.
- Bridge loans and hard money loans are short-term loans based on assets that are often used to buy things quickly or cover costs until a more stable loan can be found. A bridge loan is used to “bridge” a financial gap. A hard money loan, on the other hand, is usually from a private lender and is based on the value of the collateral, which makes it perfect for projects that might not be able to get traditional financing. The interest rates on these loans are higher, but the loans are funded faster and have more open terms.
- SBA Loans: The Small Business Administration (SBA) has programs that can work well for projects that build homes for seniors. For example, the SBA 504 loan program lets you borrow up to 90% of the cost of a project with low-interest, long-term loans with set rates. The SBA has specific rules, such as requiring at least one owner to live in a new home, but the terms of these loans are favorable. For qualified developers, they can be a great choice.
- FHA Commercial Property Investment Loans: These are loans backed by the Federal Housing Administration (FHA). They are also called HUD loans. They can have good terms, like long repayment terms (up to 40 years) and low, fixed interest rates. These are especially popular for building, buying, or refinancing multifamily buildings, such as senior living facilities.
There are also more specialized choices, such as lite-doc and no-doc loans, which can be used in situations where a complete documentation process is not possible. The important thing is to find a loan that fits your project’s long-term costs and financial needs.
Conventional Loans vs. Government-Backed Programs: Which Is Right for You?
There are two main types of loans that you can use to finance a business real estate project, like senior housing: conventional loans and government-backed loans. Some people know how to get a standard loan for a single-family home, but commercial financing has its own rules and programs.
- Conventional loans are loans from private lenders like banks, credit unions, and other financial companies. The government does not insure or guarantee these loans. Most of the time, conventional loans for senior living are more flexible. They might be a good fit for developers with extensive knowledge and a proven track record of financial management. But they usually have stricter lending rules and need bigger down payments. They might have higher interest rates than choices backed by the government. Lenders who follow the rules set by Fannie Mae or Freddie Mac often focus on multifamily financing and can also help you get a standard loan. Even so, their rules are mostly about properties with more traditional apartment layouts rather than senior living.
- Government-backed programs: These loans are backed by the government and are insured or guaranteed by a government agency. This lowers the risk for the lender and lets them offer better terms to clients. One of the most important groups in this area is the Department of Housing and Urban Development (HUD). For example, HUD FHA loans are often used for building senior housing because they offer some of the highest leverage in the business, which means you may need a smaller down payment. They also provide a long-term answer with a fixed rate. Most of the time, these loans take longer to get approved for and have tighter rules. Still, the perks, like low interest rates and loans that you don’t have to pay back, can make the work well worth it.
Understanding Key Financial Terms: Loan Amount, Interest Rates, and Credit Score
Getting the best terms on a loan for a new construction project depends on several factors, including your credit score and the viability of the project. For a good application, it’s important to clear up these essential financial terms.
- Loan to Value (LTV): This is one of the most critical ways lenders determine the risk level of a loan. The loan-to-value (LTV) ratio compares the loan amount to the property’s value. Your LTV is 75% if the lender gives a loan of $7.5 million for a project that is worth $10 million altogether. When the LTV is smaller, the down payment is usually higher. Lenders see this as less risky, which can lead to better loan terms and interest rates.
- Rates of Interest: The cost of getting money is based on the interest rate. There are two types of interest rates for commercial loans: fixed and adjustable. A fixed rate stays the same for the life of the loan, while a flexible rate can change over time. Your credit score, the project’s financial health, and the state of the market all play a significant role in determining your interest rate.
- Debt Service Coverage Ratio (DSCR): Lenders will look closely at how well your project can make money to pay its debts. The debt service coverage ratio (DSCR) is a number that shows how much the property owes each year compared to how much it makes from operations. The property’s income must be at least 1.20 times its loan payments, which is what most lenders look for. This is an essential part of figuring out how much of a loan your project can handle.
- Credit Score: Your personal and business credit score, as well as your financial history, are very important to lenders when they decide whether to give you money. A good credit score shows that you have been good at managing your money in the past. Because of this, interest rates may decrease, and loan terms may become more favorable.
Partner with a Proven Underwriter for Your Senior Housing Project
Securing the right financing for a housing project for seniors is challenging. It requires a deep understanding of both the healthcare and real estate industries. We have been underwriting senior housing for more than 30 years, which gives us a unique understanding of the special financial and operational needs of these properties. Over 200 private lenders and investors are part of our extensive network. This gives you a lot of financing choices to choose from, so you can find the best one for your project.
As both a “table lender” and a “correspondent lender,” we offer a range of financing options. When a mortgage company starts, underwrites, and funds loans with its own money or a line of credit, it is called a correspondent lender. Then, they sell these loans to bigger banks, which frees up their cash to make more loans. A table lender, on the other hand, is someone who makes a loan in their own name at the closing table. Still, the loan is given to a different lender right away.
We can now offer a broader range of loan goods and speed up the underwriting process, making the whole deal go more smoothly. When you mix these two skills with our expert financial advice, we can make the best deal for your specific project, from buying the land to cutting the ribbon.
Start Your Senior Housing Journey Today: The Next Steps
Are you ready to begin? It’s easy with us. Our full range of services is designed to support you through every step of the financing process, helping your dream of building senior homes become a profitable reality.
- Partnerships with brokers: We offer both exclusive and non-exclusive referral programs, catering to brokers of all experience levels in the senior housing business. We give you the knowledge and tools you need to close deals and expand your company in this high-demand area.
- Help with Loans: Besides new building loans, we can also help you with several other loan types that will fit your needs. This includes DSCR loans, which are based on the cash flow of the property instead of the borrower’s income, and USDA B&I loans, which are government-backed loans meant to help rural businesses and can be an excellent choice for senior housing projects in certain areas.
Your dream project shouldn’t be stopped by how hard it is to get business financing. Get in touch with us right away to find out more about our services and how they can help you make your dream come true.
Conclusion
Building a new community of senior housing is a fun and profitable project. There is a lot of demand for these homes because the number of people aged 80 and up in the U.S. is expected to increase significantly in the next few years, and rental rates are always going up. The number of new senior housing projects being planned is at its lowest level since 2013. This is an excellent time for investors with substantial funds to enter the market and meet the demand.
It’s easier to get a loan for a new apartment building if you have a known financial partner. You can get the best loan terms for your project if you work with an experienced underwriter who understands the senior housing market well and offers a wide range of conventional and government-backed loan choices. From the initial meeting to discuss funding to the final ribbon-cutting, our team is here to help you turn your dream into a great project that will benefit your community for years to come.
FAQs
What is the difference between a construction loan and a permanent loan for senior housing?
The process of building is paid for by a construction loan, which is a short-term loan with an adjustable rate. You only pay interest on the amount that has been drawn, and the money is sent to you in steps. A permanent loan takes the place of the building loan once the project is finished and stable. A permanent loan is a long-term mortgage with a set rate that is paid off over many years. This lets you pay off the loan’s principal and interest.
What is the average loan size for a senior housing construction project?
Depending on the project’s location, size, and type of facility (e.g., independent living vs. memory care), the average loan size for building senior housing can vary significantly. For these projects, however, the average deal size is usually bigger than for regular multifamily homes. This is because the projects are more complicated and bigger. Fannie Mae says that the average size of a deal for senior homes is at least $10 million.
What is the typical interest rate on a new construction loan for a senior living facility?
Most of the time, interest rates on loans for new construction are higher than rates on standard mortgages for homes that are already owned. The backer is taking on more risk because the building in question hasn’t been built yet. The exact rate will rely on how creditworthy the borrower is, how viable the project is, and how the market is doing in general. Some percentage points more than a standard business mortgage is what you can expect in terms of rates.
What are the most common challenges in financing a new senior living facility?
High upfront costs are one of the most common problems. This can make it hard to get standard bank loans. Many lenders are hesitant to fund these projects because the business is highly specialized and involves a lot of risks. Other problems are rising operational costs, complicated rules and regulations that must be followed, and getting investors in a field that is already very competitive.
How long does it take to get a new construction loan for a senior living facility?
It takes a wide range of times to get a loan for building a new home. It may take less time to get a conventional loan from a private lender. On the other hand, government-backed programs like HUD’s often have a stricter and longer review process that can last from 5 months to a year. The timeline can also be influenced by the difficulty of the job and the thoroughness of the application materials.
