Make an informed financing decision
How to Finance a 5–8 Unit Building
A small apartment building moves beyond the standard one-to-four-unit residential review. The 5–8 unit DSCR program looks at the whole building, its leases, operating profile and the investor’s experience.
- Residential units
- 5–8
- Investor experience
- Required
- STR income
- Not eligible
Check eligibility before sizing the loan
The published range is $400,000 to $2 million, with a minimum DSCR of 1.00 and base credit score of 700. First-time investors and first-time homebuyers are ineligible. The borrower needs at least one year of qualifying ownership and management experience in the last three years.
Illinois and New York are excluded. Connecticut, Florida and New Jersey require 720 credit and tighter leverage. Rural properties are not eligible.
Build the qualifying rent schedule
For occupied units, use the lower of estimated market rent and the lease. Vacant residential units qualify at 75% of market rent and must be actively marketed. A building with four or more units may have no more than two vacancies.
Reduce qualifying rent by any management fee reflected in the appraisal. Short-term rental income is not eligible. Divide eligible monthly rents by PITIA, or ITIA when the approved interest-only structure permits it.
Allow time for the appraisal and review
The appraisal requires an interior inspection and photographs of every unit, with a rent roll and income and expense statement. Accepted small-commercial forms or a narrative report must include the required attachments.
A commercial BPO or second appraisal supports the review. Pennsylvania and North Carolina use a commercial evaluation rather than a commercial BPO.
Plan cash beyond the down payment
At the $1.5 million base tier, maximum purchase LTV is 75%, rate/term 70% and cash-out 65%. At the $2 million tier, purchase falls to 70% and rate/term to 65%. Apply stricter state overlays when required.
Reserves are six months PITIA, rising to nine months above $1.5 million. Cash-out proceeds cannot satisfy reserves. Include closing costs, repairs and an operating contingency in your own investment budget.
Questions about how to finance a 5–8 unit building
Can I use the 2–4 unit DSCR rules for six units?
No. A six-unit building follows the separate 5–8 unit program and its appraisal, experience, vacancy and reserve requirements.
Related financing and resources
Financing depends on the property, occupancy, documentation, credit and applicable program guidelines. Final terms and availability require underwriting review. This information is educational and is not a commitment to lend.
