2–4 Unit Property Financing

Separate an investment from an owner-occupied purchase

Standard DSCR can evaluate eligible 2–4 unit investment properties using rental cash flow. A borrower who will live in a unit needs an eligible owner-occupied program and must disclose that plan.

Five or more residential units move into a different program. The 5–8 unit DSCR guidelines require experienced investors and different loan, appraisal and vacancy rules.

Document each unit’s income

Leases and the appraiser’s rent schedule should identify each unit. Rental income is evaluated unit by unit; a strong building-wide total should not conceal a restricted or unsupported rent assumption.

The standard DSCR program has separate treatment for purchases, refinances, vacant units and short-term rentals. The larger multi-unit program’s 75% vacant-unit method should not be substituted into a 2–4 unit file without confirming the applicable rules.

Know the occupancy and state limits

Prime Time lists 2–4 unit properties with an 85% property LTV cap, subject to the lower applicable matrix tier. Foreign National DSCR limits 2–4 units to 70% purchase and 65% refinance, with 2–4 units ineligible in Illinois and New York.

The standard DSCR first-time-investor exception is restricted to one unit. A first-time investor should not assume a duplex qualifies under that exception.

Prepare for a multi-unit appraisal

Confirm the legal unit count and describe any accessory unit separately. The appraiser needs to evaluate the actual property and rents.

• Property address, legal unit count and occupancy plans.
• Leases, rent roll and current tenant status for each unit.
• Taxes, insurance, utilities paid by the owner and association costs.
• Experience history, funds to close and reserves.