5–9 Unit Small Multifamily DSCR Loans: Valuation & Sizing Guidelines

Rule

Lendency offers DSCR financing for 5–9 unit small multifamily properties, with loan amounts ranging from $100,000 up to $3,000,000 (and total borrower exposure capped at $20,000,000). Eligible properties must be suitable for year-round occupancy, contain a minimum of 500 square feet per unit, sit on no more than 10 acres, and maintain a minimum appraised value of $50,000 per unit. In all cases, properties must meet a mandatory requirement of at least 50% occupancy (at least 50% of units leased) to qualify. Maximum Loan-to-Value (LTV) is capped at 75% for purchases, rate-and-term refinances, cash-out refinances, and interest-only options for qualifying borrowers with a 700+ FICO score. General qualification requires a minimum DSCR of 1.00x, a minimum credit score of 660, and at least one guarantor demonstrating 12 months of experience with 5+ unit multifamily properties or a 1–4 unit track record of an equal or greater unit count. Ineligible property types include mixed-use, condotels, co-ops, manufactured/mobile homes, working farms, raw land, rural properties, commercial-use buildings, and deed-restricted assets.

Lendency Insight

Small multifamily properties (5–9 units) bridge the gap between residential real estate and mid-sized commercial assets. Because commercial properties with 5 or more units fall outside standard residential agency guidelines, underwriting focuses heavily on both asset-level cash flow and guarantor execution capability. While traditional commercial loans require tax returns and lengthy global cash flow analyses, our DSCR Program evaluates qualifications based on property revenue versus debt service. Requiring at least 1.00x DSCR ensures the property covers its debt payment (PITI + operating expenses), while enforcing a strict 50% minimum occupancy threshold across all transactions ensures foundational cash-flow stability. Furthermore, requiring at least one guarantor to have relevant property management experience minimizes operational risk on multi-tenant assets.

Common Scenarios & FAQs

  • What occupancy level is required for small multifamily loans? Properties must maintain at least 50% occupancy in all cases (50% or more of the total units must be leased) to be eligible for financing.

  • What are the FICO and LTV thresholds for small multifamily loans?

    Borrowers with credit scores of 720 or higher qualify for up to 75% LTV on purchases, rate-and-term refinances, and cash-out refinances.

    Borrowers with FICO scores of 700–719 qualify for up to 75% LTV on purchases/rate-and-term and 70% LTV on cash-outs.

    Borrowers with FICO scores of 680–699 qualify for up to 70% LTV on purchases/rate-and-term and 65% LTV on cash-outs.

    Borrowers with FICO scores of 660–679 qualify for up to 65% LTV on purchases/rate-and-term and 60% LTV on cash-outs.

    Foreign National (FN) borrowers qualify for up to 65% LTV on purchases/rate-and-term and 60% LTV on cash-outs.

  • How is the Debt Service Coverage Ratio (DSCR) calculated? The DSCR is calculated as Gross Rental Income divided by Proposed PITI plus Appraisal-derived Operating Expenses. For Interest-Only (IO) loans, the IO payment is used to calculate the DSCR. The minimum allowable DSCR is 1.00x.

  • How are leases and vacant units evaluated? For occupied units, the qualifying rent is the lesser of the lease rate or market rent if below market, or the higher of the two if above market (requires 2 months of actual rent proof). For vacant units, the qualifying rent is 100% of appraised market rent for those units.

  • What documentation and liquidity are required for closing? Borrowers must show sufficient liquidity to cover closing costs, 6 months of PITIA reserves, and any unsatisfied liens of $5,000 or more. Up to 100% of cash-out proceeds and 50% of vested retirement accounts can count toward liquidity, while cryptocurrency is not permitted.

  • What appraisal reports are required? Appraisals must be completed by an MAI appraiser using a Commercial Narrative Appraisal, Form 71A, or Form 71B (for loan amounts under $750,000). A Clear Capital Exterior Commercial Sales & Income BPO is required as a secondary appraisal review.

  • Are there any city-level restrictions? Properties in Baltimore are not permitted, and a 5% leverage reduction applies to properties in Chicago, Detroit, and Flint.

Key Definitions

  • 5–9 Unit Multifamily: A residential investment property containing 5 to 9 distinct housing units designed for year-round occupancy.

  • 50% Occupancy Rule: A strict program baseline requiring at least 50% of all residential units in the subject property to be leased and occupied.

  • Debt Service Coverage Ratio (DSCR): A financial metric calculated by dividing gross property operating income by the total proposed PITI plus operating expenses to measure debt-payback capability.

  • MAI Appraiser: A commercial appraiser holding the Member of the Appraisal Institute designation, authorized to perform narrative commercial appraisals for small multifamily property valuations.

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