Multifamily DSCR Loans: Financing 5 to 20 Unit Apartment Buildings
Multifamily property financing may use property-level operating analysis, while selected buy-and-hold DSCR options may consider eligible multifamily properties up to 12 units. Learn how the approaches differ and what to prepare for review.
# Multifamily DSCR Loans: Financing 5 to 20 Unit Apartment Buildings
The 5–20 unit space is where many real estate investors move after mastering single-family rentals. It's also the segment where traditional lending options become scarce — and where DSCR-based commercial financing becomes essential.
Why 5+ Units Are Different
Properties with 5 or more units are generally evaluated as commercial real estate rather than through standard residential financing channels. This can change the underwriting and documentation approach, but it is not a universal DSCR unit cutoff: a selected buy-and-hold DSCR option may consider eligible multifamily properties up to 12 units, subject to its own property and program review. This can mean: - Fannie/Freddie conventional loans are not available - Underwriting is based on Net Operating Income (NOI), not personal income - Loan sizing is driven by property performance - DSCR minimums are typically higher (1.20x vs. 1.0x for residential)
How Multifamily DSCR Works
DSCR Formula for Multifamily: > DSCR = Annual NOI ÷ Annual Debt Service
Annual NOI = Gross Rental Income − Vacancy Allowance (5–10%) − Operating Expenses (taxes, insurance, maintenance, management)
Example: - 10-unit building - Gross Rent: $12,000/month ($144,000/year) - Vacancy (7%): −$10,080 - Operating Expenses: −$45,000 - Annual NOI: $88,920 - Proposed Debt Service (at 75% LTV, 8%): $74,400/year - DSCR: 1.19x ← Borderline qualifying
Typical 5–20 Unit Loan Parameters
| Parameter | Typical Range |
|---|---|
| Loan Amount | $500,000 – $5,000,000+ |
| LTV | Up to 75% |
| Min. DSCR | 1.20x |
| Term | 5-year fixed, 7-year fixed, 25–30 year amortization |
| Recourse | Non-recourse available above $1M |
| Closing | 21–45 days |
What Lenders Look For
- Actual rent rolls — Not pro-forma projections
- 12 months of operating history — Bank statements and expense records
- Occupancy — Most lenders want 90%+ at underwriting
- Property condition — Major deferred maintenance is underwritten conservatively
- Market rent analysis — To support current and projected rents
Common Mistakes
- Using pro-forma NOI: Lenders use actual trailing 12-month figures, not projections
- Ignoring CapEx reserves: Operating expenses should include a reserve for capital expenditures
- Overestimating occupancy: Use actual occupancy, not market vacancy
- Underpricing management: Even if you self-manage, lenders will include a management expense (usually 8–10% of gross rents)
Value-Add Multifamily Bridge
If you're acquiring a distressed or underoccupied multifamily property, a bridge loan may be needed first — to fund the acquisition and stabilization before a permanent DSCR loan is available.
Investor1st Funding reviews U.S. apartment-building and mixed-use financing scenarios for capital partners. Property size, occupancy, use, and program eligibility are reviewed individually; no approval or closing time is guaranteed. Learn about multifamily and mixed-use financing.