Financing is where a lot of first-time multifamily buyers get tripped up — mostly because apartment-building lending doesn't work like a home mortgage once you get past four units. Here's the plain-English version of how it works in Illinois.
The dividing line: 2–4 units vs. 5+ units
This is the single most important thing to understand. Buildings with 2–4 units can generally be financed with residential-style loans — including owner-occupant programs if you'll live there. At five units and up, you're in commercial-loan territory, where the lender underwrites the building's income more than your personal salary.
Common loan types
- ✓Conventional / residential — for 2–4 units, often the cheapest option, especially owner-occupied.
- ✓DSCR loans — qualify based on the property's cash flow (debt service coverage ratio), not your W-2.
- ✓Agency small-balance (Fannie/Freddie) — competitive fixed-rate debt for stabilized 5+ unit buildings.
- ✓Bridge loans — short-term financing for value-add buildings you'll stabilize and refinance.
What is a DSCR loan?
DSCR stands for debt service coverage ratio — the building's net operating income divided by its debt payments. A DSCR of 1.25 means the property earns 25% more than the mortgage costs. DSCR lenders care about that ratio more than your personal income, which makes these loans popular with investors who have strong buildings but complex tax returns.
How lenders size your loan
Commercial lenders look at two limits: loan-to-value (how much of the price they'll lend) and DSCR (whether the income comfortably covers the payment). The lower of the two governs. That's why a building's real NOI — see how valuation works — drives not just price but how much you can borrow.
Down payments and reserves
Expect 20–25%+ down for investment multifamily (less for owner-occupied 2–4 units), plus reserves in the bank. Rates and terms move with the market, so a fraction of a point matters to your returns — shop lenders.
Get pre-qualified first
Before you make offers, get pre-qualified. It tells you your real budget and it makes your offers credible. When you're ready, we'll connect you with multifamily lenders we've closed with and help you line up financing as part of your buying strategy.
Frequently Asked Questions
What's a DSCR loan?
A loan that qualifies based on the property's cash flow (its debt service coverage ratio) rather than your personal income — common for investors.
Can I use an FHA loan on a fourplex?
Owner-occupant programs can finance 2–4 unit buildings with lower down payments if you live in one unit. Talk to a licensed loan officer about current program terms.
How much down do I need for a 6-unit?
At six units you're in commercial-loan territory — typically 20–30% down plus reserves, with the exact figure driven by the building's DSCR and the lender.
Do rates differ for commercial multifamily?
Yes. Commercial and DSCR loans usually price differently than owner-occupied residential mortgages, and terms vary by lender and building. We're not a lender, but we'll point you to the right ones.
*AJ Commercial Group is a brokerage, not a lender or financial advisor — consult a licensed loan officer for terms.* Ready to buy? Contact us or call (630) 895-7989.