Multi-Family apartment buildings 5 or more units are zoned Commercial and therefore fall under commercial loan guidelines. Commercial loans are full documentation with a full income analysis, making it hard at times for investors to get into 5 plus units.

Recently DSCR (Debt Service Coverage Ratio) for residential properties has been the talk, you probably have seen most loan officers market the heck out of these in recent months! It's been a great alternative that some lenders have expanded their DSCR to 5 - 8 Apartment Units. Making it accessible for investors.

It has some of the same guidelines that DSCR for residential properties for 1-4 units, but it also has some similarities to a commercial transaction, one of them being a lower loan to value.

So what's the difference between a DSCR loan for 5 - 8 units and a Traditional Commercial Loan?

The main difference is the terms, DSCR terms are 15 and 30 years fixed and 30 and 40-year interest only options, there is more leniency as to Minimum Credit scores, Vacant units, and DSCR coverage.

Commercial loans are typically shorter terms with a balloon payment at the end of the term and are more strict regarding the cash flow and investor/owner finances/assets.

Nelson Arevalo