Multi Family Unit Investment Loans

Multi-family properties are residential buildings with 2-4 separate dwelling units, including duplexes (2), triplexes (3), and fourplexes (4). Each unit has its own entrance, kitchen, bathroom, and living spaces, and can be rented independently. Properties with 5 or more units are classified as commercial multi-family or apartment buildings and require different financing. Multi-family (2-4) can be financed with residential loan programs, making them more accessible to individual investors. These properties offer diversification since multiple tenants generate income, reducing risk compared to a single-family property with one tenant.

Multi-family investment properties typically require down payments of 25-30%, slightly higher than single-family properties' 20-25%. The larger down payment reflects the perceived higher risk and complexity of multi-family properties. However, the exact requirement varies by lender, loan program, and your qualifications. Borrowers with excellent credit scores (740+), strong cash reserves (6-12 months), and properties with high DSCR ratios may qualify with 25% down. First-time investors or those with lower credit scores may need 30% or more. Some lenders offer better terms for purchasing a smaller multi-family property (duplex) compared to a larger fourplex.

For multi-family properties, lenders calculate total rental income by adding the rent from all units. If the property is rented, they'll use existing lease agreements. For vacant units or new purchases, they'll use the appraised market rent. The total monthly rental income is divided by the total monthly debt obligation (mortgage payment, taxes, insurance, HOA fees) to determine the DSCR. Some lenders may apply a vacancy factor, using 75-80% of total rental income to account for turnover. Having multiple units typically works in your favor since the combined income results in a stronger DSCR ratio, and lenders recognize that vacancy risk is distributed across multiple tenants.

Multi-family DSCR loans are for fully non-owner occupied investment properties. However, some lenders offer different products if you plan to owner-occupy one unit. If you'll live in one, you typically apply for an owner-occupied multi-family loan, which is a different product with its own requirements, often lower down payments (3.5-15%) but requiring personal income verification. For pure DSCR loans where you're not occupying any unit, all must be rented to generate the income for qualification. The property should be treated as an investment. If you want to house-hack (live in one while renting others), discuss owner-occupied options instead.

Yes, multi-family investment properties require more comprehensive insurance than single-family ones. You'll need a landlord or rental dwelling policy covering the entire building, all units, and common areas, including property coverage, liability protection, and loss of rental income. The limits must cover the full replacement cost of the building. Many lenders require an umbrella liability policy, especially for 3-4 unit properties, with coverage of at least $1-2 million. Additional coverage may be needed for those with common areas. Insurance costs for multi-family properties are higher than single-family homes, so factor this into your DSCR calculations and cash flow projections.