How to Finance a Multifamily Property (5+ Units)

Why 5+ Units Is Commercial (Not Residential) Financing

The first thing to understand: once a property has five or more units, it is classified as commercial real estate — even if the individual units look like apartments. That classification changes everything.

Residential mortgages (1–4 units) are underwritten to the borrower's personal credit and income. Commercial multifamily loans (5+ units) are underwritten to the property's income and the borrower's real estate investment experience. Lenders evaluate the deal, not just the borrower.

This distinction matters because it opens the door to agency financing (Fannie Mae and Freddie Mac), which offers terms that residential products simply cannot match.

Loan Options for Multifamily Properties

Agency Loans (Fannie Mae / Freddie Mac)

The dominant financing source for multifamily. Agency loans are not direct government loans — they are originated by approved lenders and securitized by government-sponsored enterprises (GSEs). The result is access to long-term fixed rates, non-recourse execution, and high loan-to-value (LTV) ratios that conventional lenders cannot match.

As of May 2026, Fannie Mae DUS fixed-rate terms for loans under $6M include:

Source: ApartmentLoanStore — Fannie Mae Rates May 2026

Agency loans typically require 90% stabilized physical occupancy for 90+ days, borrower net worth equal to the loan amount, and liquidity reserves of at least 10% of the loan balance.

CMBS Loans

Commercial mortgage-backed securities loans are pooled and sold to investors. They offer competitive fixed rates and non-recourse execution, but with more rigid underwriting and slower closing timelines. CMBS is most common on larger assets ($10M+).

Bank and Portfolio Loans

Regional and community banks offer flexible, relationship-driven multifamily financing. Terms vary widely, but these lenders often accept higher-LTV deals and non-standard property types that agency programs cannot. Expect 65–75% LTV, 1.20–1.25x DSCR, and 5–10 year terms with balloon structures.

SBA 7(a) and 504 Loans

The Small Business Administration offers programs for multifamily properties with 5–50 units. SBA 504 can provide up to 90% LTV for eligible projects, making it competitive with agency execution for smaller deals. The tradeoff is slower processing and strict occupancy requirements.

How Lenders Underwrite Multifamily: DSCR and NOI

Every multifamily lender anchors their decision on two numbers: Debt Service Coverage Ratio (DSCR) and Net Operating Income (NOI).

DSCR = NOI ÷ Annual Debt Service

A DSCR of 1.25x means the property generates 25% more income than required to cover its mortgage payments. According to Fannie Mae DUS guidelines, the minimum DSCR for conventional multifamily is 1.25x — anything below that is generally declined by agency lenders.

NOI = Gross Rental Income − Operating Expenses

Operating expenses include property taxes, insurance, utilities, management fees, maintenance, and vacancy allowance. Lenders use a stabilized NOI (not a pro-forma projection) to underwrite the loan. This means renovations or rent increases that haven't yet generated income won't count until they actually do.

Use our DSCR Calculator to see whether your property qualifies.

Value-Add and Bridge Financing Strategies

For properties that don't meet agency stabilized requirements — those undergoing renovation, partially occupied, or in lease-up — value-add and bridge lenders provide short-term capital.

Value-add loans typically carry higher rates (8–12%) but allow acquisition of properties with below-market rents or deferred maintenance, with the expectation that improvements will push NOI higher. Once stabilized, the borrower can refinance into agency permanent financing at better terms. Near-stabilization execution (Fannie Mae program) allows financing for properties expected to reach 90% occupancy within 120 days, with DSCR targets as low as 1.15x for affordable housing properties. This bridges the gap between construction completion and permanent agency execution.

Typical Terms at a Glance

## What Makes a Multifamily Property Financeable

Lenders don't just look at numbers — they assess the quality of the asset and the sponsor. Here's what underwriters focus on:

• Location and market fundamentals: Is the submarket absorbing inventory? What's the job growth and population trend?
• Tenant quality: Are tenants paying on time? What's the rent-to-income ratio for the area?
• Property condition: Deferred maintenance creates risk. Lenders require Phase I environmental and property condition reports.
• Sponsor experience: Most agency lenders require at least two years of multifamily ownership experience and a net worth equal to the loan amount.

Frequently Asked Questions

What credit score do I need for a multifamily loan?

Agency lenders typically require a minimum 620 FICO score, though strong assets and experienced sponsors can offset lower personal credit with property performance.

Can I use a multifamily loan to buy a 4-unit property?

No. Properties with 1–4 units are residential and require residential financing. Properties with 5+ units require commercial multifamily financing.

What is the minimum down payment for a multifamily loan?

Agency loans typically require 20–25% down (75–80% LTV). Some SBA and bridge programs allow higher leverage, but with higher costs.

How long does it take to close a multifamily loan?

Agency loans typically close in 45–90 days from application. Bank and portfolio loans may close faster for relationship borrowers. SBA loans can take 60–180 days.

What does "non-recourse" mean?

Non-recourse financing means the borrower's personal liability is limited to the collateral — the property itself. If the loan goes into default, the lender cannot pursue the borrower's personal assets beyond the property, except in cases of fraud or misrepresentation ("bad boy carve-outs").

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