Mixed-Use Loans: Financing Commercial Space with Commercial Space Above

Mixed-use property loans from Total Quality Lending finance commercial space with residential units above on the building’s rental cash flow, not your personal income. Our Multi-Unit & Mixed Use program covers mixed-use buildings of 2–8 units, at up to 75% loan-to-value, or LTV, on a purchase, with a 700 minimum FICO credit score. It is for investment properties only.

Why a storefront moves the loan to a different program

If you own a few rentals and the conventional route has filled up, a building with a shop on the ground floor and apartments upstairs is a reasonable next step. More doors, one roof, one closing.

The storefront changes how that building gets financed. A two-unit building is a duplex, and it runs on a standard debt service coverage ratio, or DSCR, loan. Replace one of those apartments with a retail space and the same two units move to a different program. The commercial space decides it, however few units there are.

Total Quality Lending’s Multi-Unit & Mixed-Use program has its own credit box. Very little carries over from standard DSCR, so assume nothing does. The credit floor is higher, the loan-to-value ceiling is lower, and the rules on who lives there and how the apartments get rented are stricter.

The building also has to stay mostly residential. The commercial space, whether it is retail, office or a restaurant, cannot be the larger share of the property. A building that is mostly storefront with one apartment in the back is a commercial property, and this program does not finance it.

How does a mixed-use loan compare to a standard DSCR loan?

A standard DSCR loan covers 1–4 residential units. Total Quality Lending’s Multi-Unit & Mixed-Use program covers 5–8 residential units, or 2–8 units when the building is mixed use. Both qualify on the property’s rent.

The differences are in the limits. Standard DSCR goes up to 85% LTV on a purchase with a 640 minimum FICO score, and it accepts short-term rental income, including projections on a purchase. The mixed-use program goes up to 75% LTV on a purchase, requires a 700 minimum FICO score, and does not accept short-term rental income at all.

Both programs qualify on the property. Neither one asks for your tax returns or calculates your debt-to-income ratio. The difference is the box around the building, and the mixed-use box is tighter on every line.

How commercial space with residential units qualifies

The debt service coverage ratio compares the rent a building collects to the monthly payment on the loan. When the rent is larger than the payment, the ratio sits above 1, and the property is carrying its own debt.

On a mixed-use building, the rent side includes every unit, the storefront lease and the apartment leases together. That is why the tenant mix matters before the price does. A long lease with an established business downstairs is steadier rent than a storefront that turns over every year, even when the asking rent is the same.

Run the ratio before you write an offer. If the rent doesn’t cover the payment at the price you’re considering, the deal needs a lower price, more money down, or a different building.

The appraisal is different too. A mixed-use building is appraised on a commercial form rather than the residential form a duplex gets, because it earns income from two kinds of tenants.

Who qualifies for a mixed-use property loan?

The program is built for an investor who already owns and runs rentals. First-time investors are not eligible.

Four limits rule out most of the wrong deals before they get far:

• You can’t live in it. Neither you nor your immediate family may occupy a unit. If the plan is to live upstairs and rent the shop, owner-occupied financing sits outside our investor line, and this is not the loan for it.
• The units must rent long term. Short-term rental use and short-term rental income are not eligible on this program. A building you plan to run as nightly rentals upstairs belongs on a different structure.
• The building has to be rentable now. Total Quality Lending does not fund renovation or a storefront build-out. If the building needs work first, you fund the purchase and the work, then we refinance it once it is rehabbed and rented.

One more boundary, stated plainly. If you are shopping mixed-use loans on rate alone, that is a fair thing to want, and there are lenders built for it. We are built for the investor who wants the whole deal handled, and we price for that work.

What Total Quality Lending does before you make an offer

The analysis happens before you commit to anything. Total Quality Lending models the building’s cash flow, rental projections, debt service coverage and return on investment at no cost, so you know whether the deal works before you spend money on inspections.

From there, the structure is simple to describe:

• One flat fee covers underwriting and processing. No points and no origination fee.
• The loan and the title can both sit in your LLC. Your limited liability company holds them, so you don’t take title personally and transfer it later. Ask your attorney and CPA how the entity should be set up.
• Total Quality Lending is a direct lender with its own underwriters. The structure of a mixed-use deal gets worked out in the first conversation instead of in week three.

Once the building is stabilized and the leases are in place, the equity in it can fund the next one. A cash-out refinance on one mixed-use building, one loan, is one way to fund the second. Our breakdown of financing 5–8 unit buildings covers the residential side of the same program if your next deal is all apartments.

Income pays for your life. Assets change your family’s trajectory. If you have a storefront building under consideration, send us the address and the rent roll through our contact page or call (800) 304-1925, and we’ll run the numbers with you.