DSCR Direct

Yes, DSCR loans are available for commercial buildings. While the most common DSCR loan is for 1-4 unit residential properties, there are DSCR programs designed specifically for 5+ unit apartment buildings, mixed-use properties, and commercial buildings with a residential component. The underwriting approach is the same at its core - qualify based on the property's income, not the borrower's personal income - but the specifics differ from standard residential DSCR loans.

5+ Unit Apartment Buildings

Apartment buildings with 5 or more units are classified as commercial real estate, even if every unit is residential. Commercial DSCR programs for apartments are well-established and widely available. The DSCR calculation works the same way - total rental income divided by total PITIA - but with multiple units, the income is more diversified. If one tenant moves out, you still have income from the other units. Lenders like this stability, and 5+ unit DSCR loans can offer competitive rates, especially for stabilized buildings with low vacancy.

Mixed-Use Properties

Mixed-use buildings with both residential and commercial units can qualify for DSCR financing. A common example is a building with retail or office space on the ground floor and apartments above. The lender will look at the combined income from all units for the DSCR calculation. Some lenders require that the residential component make up at least 50-60% of the total square footage or income. The commercial tenant leases will be scrutinized more closely than residential leases because commercial vacancy can last longer.

How Commercial DSCR Differs from Residential

There are several key differences between commercial and residential DSCR loans. Loan amounts tend to be larger, often starting at $500,000 or more. Lenders may require a rent roll, operating statements, and a commercial appraisal rather than a standard residential appraisal. The DSCR threshold may be higher - some commercial programs require a minimum 1.20 or 1.25 DSCR. Loan terms may include balloon payments (for example, a 30-year amortization with a 10-year balloon). And interest rates can be slightly higher to reflect the commercial nature of the collateral.

Reserve Requirements

Commercial DSCR loans typically require higher reserves than 1-4 unit residential deals. Where a residential DSCR loan might require 6-12 months of PITIA in reserves, a commercial deal may require 12-18 months or more, depending on the property size, condition, and tenant mix. Lenders want to see that you can cover operating expenses and debt service through any vacancy period. For larger deals, some lenders also require a funded replacement reserve account for capital expenditures.

What Types of Commercial Properties Qualify

The broadest commercial DSCR programs cover apartment buildings (5-50+ units), mixed-use with residential component, student housing, and senior living facilities. Some lenders also offer DSCR-style programs for self-storage, office, retail, and industrial properties, though these are typically through specialized commercial lending channels rather than the standard DSCR residential lender network. The key factor is that the property generates enough income to service the debt without relying on the borrower's personal income.

Entity Structure

Commercial properties are almost always held in an entity - typically an LLC or LP. DSCR lenders expect this and are set up to close in the name of your entity. For larger deals, lenders may want to see the operating agreement, entity formation documents, and a breakdown of all members and their ownership percentages. Any member with more than 20-25% ownership will typically need to personally guarantee the loan. The entity provides liability protection and also simplifies management, tax reporting, and eventual sale or transfer.

Get Started with Commercial DSCR

Commercial DSCR deals are more nuanced than 1-4 unit residential loans, and the right program depends on the property type, size, tenant mix, and your experience level. Contact info@dscrdirect.net with details about your property - number of units, current income, estimated value, and your target loan amount. We work with lenders who specialize in commercial DSCR and will match you with the program that fits your deal.