Written and reviewed by Jack Gladden, Senior Loan Officer, NMLS #1470164
Updated · 4-minute read · How these guides are written
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Apartment and mixed-use loans in brief
- Five units and up
- Home-loan programs stop at four units. From five, lenders underwrite the building’s income like a commercial property.
- The key numbers
- Net operating income, the debt service coverage ratio (often 1.20–1.25x or more) and loan-to-value (often up to 75–80%).
- Loan options
- Fannie Mae and Freddie Mac small loans, banks and credit unions, DSCR lenders for smaller buildings, and bridge loans to renovate or lease up.
- Terms
- Often 5, 7 or 10 years fixed, amortized over up to 30 years, with a prepayment structure to plan around.
- Mixed-use
- Shops or offices with apartments; how much space is commercial decides which loans fit.
- Where
- Business-purpose loans nationwide where permitted, in your name or your LLC’s.
How lenders size the loan.
DSCR = net operating income ÷ annual loan payments
Net operating income (NOI) is the rent collected, less vacancy and operating expenses such as taxes, insurance, repairs and management. Loan payments aren’t included.
| Example: an eight-unit building | Per year |
|---|---|
| Scheduled rent | $180,000 |
| Less 5% vacancy | −$9,000 |
| Less operating expenses | −$63,000 |
| Net operating income | $108,000 |
| Most it can pay the lender at 1.25x | $86,400 |
The lender sizes the loan so its payments fit within that figure, then checks it against the loan-to-value limit; the lower of the two wins. Lenders use their own vacancy and expense assumptions, often higher than the seller’s.
Apartment loan options.
Agency small loans
Fannie Mae’s small loan program: 5+ unit stabilized buildings, up to $9 million, up to 80% of value, at least 1.25x coverage, 5- to 30-year terms, often non-recourse.
Best forStabilized buildings and long-term holds
Bank and credit union
Portfolio loans with flexible structures, often 5- to 10-year terms with recourse, and relationship pricing.
Best forLocal buildings and mixed-use
DSCR and portfolio lenders
Qualify on the property’s rent for smaller buildings, with little personal income paperwork.
Best forInvestors with complex tax returns
Bridge loans
Short-term financing to renovate, lease up or reposition, with a refinance once the income is stable.
Best forValue-add and vacant buildings
For one- to four-unit rentals, see DSCR loans. For renovation-heavy buildings, see rehab loans.
Mixed-use buildings.
- Mostly residential, you live there
- A home loan can work: Fannie Mae accepts a one-unit home with business space you own and run, and FHA allows mixed-use when at least 51% of the floor area is residential.
- Your business occupies it
- SBA 7(a) and 504 loans can finance a building your business occupies, generally at least 51% of an existing building. They can’t fund passive rental investment.
- Investment mixed-use
- Banks, credit unions and commercial lenders underwrite each income stream, retail, office and residential, and often want more down with more commercial space.
- Small mixed-use
- Some DSCR lenders accept small mixed-use buildings with a limited share of commercial space.
Have a building in mind?
Send me the rent roll, the operating statement and the price. I’ll show you how lenders will size it and which ones fit.
Terms and prepayment.
- Term and amortization
- A fixed period, commonly 5, 7 or 10 years, with payments calculated over up to 30 years; the balance is due or refinanced at the end.
- Recourse
- Banks usually want a personal guarantee. Agency loans are often non-recourse, apart from standard carve-outs for fraud and similar acts.
- Step-down prepayment
- A declining penalty, such as 5-4-3-2-1% over five years.
- Yield maintenance or defeasance
- Common on agency and securitized loans; paying off early can be expensive when rates have fallen.
- Reserves and escrows
- Replacement reserves and tax and insurance escrows are typical, especially at higher leverage.
What lenders ask for.
- Rent roll. Every unit’s rent, lease dates and deposits.
- Operating statements. Two to three years of income and expenses, plus the year to date.
- Your experience. A schedule of properties you own or have managed.
- Personal financials. A financial statement and proof of liquidity; reserves after closing.
- Third-party reports. Appraisal, property condition and environmental screening.
How we get started.
Send the numbers
Rent roll, operating statement, price and your plans for the building.
I size it with lenders
Agency, bank, DSCR and bridge options, compared on leverage, terms and prepayment.
Term sheet and approval
Including the appraisal and third-party reports.
Close
In your name or your LLC’s, then refinance or grow the portfolio.
Apartment and mixed-use loans, answered plainly.
How hard is it to get a loan for an apartment building?
It depends more on the building than on you: steady occupancy and income that covers the payment by about 1.25x or more make it straightforward. Experience, liquidity and the property’s condition matter too.
Why is a 5-unit building different from a 4-unit?
Home-loan programs cover one to four units. Five or more are underwritten on the building’s income, with commercial-style terms.
What kind of loan for a mixed-use property?
It depends on the mix and who uses it: a home loan if you live there and it’s mostly residential, SBA if your business occupies it, and a bank or commercial loan for investment buildings.
Can I get an FHA loan for a mixed-use property?
Yes, for one to four units you’ll live in, when at least 51% of the floor area is residential.
Can I get a DSCR loan for a mixed-use property?
Some DSCR lenders accept small mixed-use buildings with limited commercial space. Others need a bank or commercial lender.
Can I get an SBA loan to buy an apartment building?
No, not as a rental investment. SBA loans are for buildings your business occupies.
Do I need tax returns?
It depends on the lender. Agency and bank loans review your finances and experience; DSCR lenders focus on the property’s income.
Can I finance properties in other states?
Yes. These are business-purpose loans, which I can arrange nationwide where permitted.
Is mixed-use property a good investment?
It can be: two kinds of income, often higher yields than residential, and commercial leases that run longer. It’s also harder to finance and to sell, and an empty storefront hurts more. Lenders look closely at the residential share, the leases and the building’s income.
What qualifies as a mixed-use property?
A building with both residential and commercial space, such as apartments over shops. How a lender treats it depends on the mix: mostly residential with one to four units can qualify for home loans; more commercial space means commercial or DSCR programs.
Can I buy a two- to four-unit home with 5% down?
Yes, if you’ll live in one of the units: Fannie Mae allows as little as 5% down on two- to four-unit primary homes, and FHA 3.5%. Rent from the other units can help you qualify. For a building you won’t live in, expect a much larger down payment, often 25%.
DSCR & investor
Construction & bridge
Rehab & code cases
Cash-out refinance