The line between a 2-4 unit investment property and a multifamily commercial property sits at exactly five units. Below that threshold, residential mortgage guidelines apply. At five units and above, commercial underwriting takes over. The practical difference is significant: residential DSCR and conventional guidelines are well-known; commercial underwriting uses different metrics, different lenders, and different pricing structures entirely.
2-4 Unit Investment Properties: Residential Rules
- ✦Conventional (Fannie/Freddie): maximum 75% LTV on 2-4 unit investment; 620+ FICO; standard income documentation
- ✦FHA: available on 1-4 unit primary residence only; not available for pure investment properties
- ✦DSCR: most non-QM lenders include 2-4 units; typical 75% LTV maximum; 6 months PITIA reserves
- ✦Unoccupied 2-4 units: many DSCR lenders apply additional LTV reduction of 5% for vacant properties
- ✦Rent documentation: if the property has existing leases, lenders use actual lease amounts; if vacant, use Form 1007 market rent appraisal
- ✦LLC vesting: most DSCR lenders allow LLC title on 2-4 unit investment properties
5-9 Unit Multifamily: The Crossover Zone
Properties with 5-9 units can sometimes access non-QM residential programs through lenders who have extended their residential products upward. Deephaven, Lima One, and Verus have programs that go to 5-9 units. These are treated under their commercial or investor product lines, not standard residential DSCR. Loan amounts are typically $500K to $3M. Underwriting focuses on the property's net operating income and the DSCR at the property level. Personal income documentation is not required.
10+ Unit Multifamily: Commercial Underwriting
True multifamily (10+ units) exits the residential mortgage world entirely. Financing goes through commercial banks, life insurance companies, agency multifamily programs (Freddie Mac Small Balance Loans, Fannie Mae DUS), and commercial bridge lenders. Underwriting is based on net operating income after vacancy and expense factors, not gross rent. Cap rates, debt service coverage ratios, and rent rolls replace FICO scores and bank statements as the primary underwriting inputs. Most residential-focused MLOs do not have the licensing or relationships to originate these.
Structuring the Optimal 2-4 Unit DSCR Deal
- ✦Document all existing leases; if any unit is vacant, get a market rent appraisal before application
- ✦Calculate DSCR on all four units combined: gross monthly rent from all units divided by total PITIA
- ✦For a new acquisition without tenants: get the 1007 rent schedule from the appraiser and run the DSCR on projected market rent
- ✦Consider the reserve requirement: 6 months PITIA is standard; additional loans add 4 months per loan
- ✦LTV ceiling is typically 75% on 2-4 unit DSCR; budget 25%+ down on any purchase
Aria can structure 2-4 unit DSCR scenarios and identify the right lender by unit count, LTV, and FICO. Ask at vicariointel.com.
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