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Commercial Real Estate Lending

Commercial residential lending refers to loans used to purchase or refinance residential real estate that is considered income-producing and typically not owner-occupied—like apartment buildings, multifamily homes with 5 or more units, or residential properties held under a business entity (like an LLC).

It’s called “commercial” because the financing is based on the income potential of the property, not just your personal income or credit, like a typical home loan.

🏘️ Types of Properties Financed

  • Multifamily buildings (5 units or more)
  • Mixed-use properties (residential + retail/office)
  • Apartment complexes
  • Short-term rental portfolios (Airbnb/VRBO)
  • Student housing or senior living rentals
  • Residential real estate owned by an LLC

💡 Note: Properties with 1–4 units are usually financed through “residential loans.” Once you hit 5+ units, it’s considered commercial.

💰 Key Differences from Traditional Home Loans

FeatureCommercial Residential LoanTraditional (Residential) Loan
Property Type5+ units or business-owned1–4 unit owner-occupied or rental
Approval Based OnProperty income & valueBorrower’s income & credit
Loan StructureOften interest-only or balloonFully amortizing over 15–30 years
Down PaymentTypically 20%–30%+As low as 3% (FHA/Conventional)
Term Options5, 7, or 10-year terms (with resets)15- or 30-year fixed
OwnershipOften in LLC or CorpUsually in personal name

✅ Common Requirements

To qualify for commercial residential financing, most lenders look at the property’s income, your experience as an investor, and your financials. Here's what’s typically required:

📄 1. Debt Service Coverage Ratio (DSCR)

  • Lenders evaluate whether the property’s rental income is enough to cover the loan payment
  • Most require a DSCR of 1.20 or higher
    • For example: If your monthly loan payment is $4,000, the property should generate at least $4,800/month in net income

💳 2. Credit Score

  • Many lenders want a credit score of 660+
  • Some private or non-bank lenders accept lower scores, but at higher interest rates

💼 3. Experience

  • Some programs prefer borrowers with prior landlord or real estate experience, especially on larger deals

💵 4. Down Payment

  • Usually 20%–30% or more is required
  • Can sometimes be offset by seller credits, equity from another property, or partner investment

🏦 5. Entity Ownership

  • Often requires you to form an LLC or other business entity
  • Keeps the loan and liability separate from your personal finances

📊 Loan Types Available

  • Bank Commercial Loans – Traditional banks offering structured terms, full underwriting
  • DSCR Loans – Based only on property income (not personal income)
  • Bridge Loans – Short-term financing for renovations or quick closes
  • Portfolio Loans – Used when buying multiple properties at once
  • Private/Hard Money Loans – Fast approval, flexible credit, higher interest

🧾 What Can You Use It For?

  • Purchasing a new apartment building
  • Refinancing an existing rental to pull out equity
  • Acquiring a mixed-use building with commercial and residential space
  • Financing a ground-up multifamily construction project
  • Buying an Airbnb or short-term rental portfolio

📈 Pros and Cons of Commercial Residential Loans

✅ Pros

  • Access to larger properties and bigger investment returns
  • Can finance in a business name, separating liability
  • Focus is on property income, not just personal income
  • Great for real estate investors and developers

❌ Cons

  • Higher down payment requirements
  • Shorter terms or balloon payments
  • More complex underwriting and paperwork
  • Property must cash flow well to qualify

🏁 Is This Right for You?

You might benefit from commercial residential lending if:

  • You want to invest in 5+ unit multifamily buildings
  • You’re expanding a real estate portfolio
  • You need flexibility in how the loan is structured (interest-only, LLC ownership, etc.)
  • You care more about cash flow and investment returns than just owning a home

📞 Let’s Build Your Real Estate Portfolio

If you're ready to explore multifamily or commercial residential investing, we can help you:

  • Analyze cash flow and DSCR
  • Match you with the right lending product
  • Secure financing for purchases, refis, or value-add projects