Loan Officer's Guide to Commercial & Multifamily Loans

Your investor client has been a great residential borrower — you’ve done three of his rental purchases on conventional loans. Now he calls with the next one: a 12-unit apartment building, $2,000,000, throwing off strong rents. You want to help. And then you remember the wall you always hit at exactly this size — because at five units and up, everything you know about qualifying a borrower stops applying, and your rate sheet simply doesn’t have a product for it.

So the deal walks across town to a commercial banker, who now has a foothold with your best client. Commercial and multifamily financing is how you keep that borrower as he graduates from single rentals to real portfolios. This guide explains where residential ends, how commercial deals are actually underwritten, and how — through a referral or broker relationship — you get paid on the 5+ unit and commercial files you were never built to originate. It links to current terms on our commercial real estate financing page and commercial loans by asset class.

Where residential ends and commercial begins

This is the single most important line to memorize, because it defines the entire hand-off:

• 1–4 units = residential. Conventional or DSCR. Your world (or a DSCR referral).
• 5+ units = commercial multifamily. Underwritten on the building, not the borrower.
• Mixed-use, retail, office, industrial, self-storage, etc. = commercial, regardless of unit count.

That fifth door changes everything. It’s not “a slightly bigger residential loan” — it’s a different asset class, a different underwriting model, a different set of lenders, and a different closing process. The borrower who was perfectly qualified on his fourplex is now in a world where his personal DTI is almost beside the point and the property’s economics run the show.

The four numbers that run a commercial deal

You don’t underwrite these, but four terms let you talk about a commercial deal credibly and set expectations. Learn them and you’ll sound like you belong in the conversation.

1. Net Operating Income (NOI). The property’s income after operating expenses, before debt service. Rents and other income minus taxes, insurance, management, maintenance, and reserves. NOI is the foundation everything else is built on.

2. Capitalization rate (cap rate). NOI divided by value — the unleveraged return the building produces. Run in reverse, it sets value: NOI ÷ market cap rate = implied value. A $120,000 NOI at a 6% cap implies a $2,000,000 building.

3. Debt Service Coverage Ratio (DSCR). NOI divided by annual debt service. Commercial lenders typically want 1.20–1.25+ — the building’s income must exceed its loan payments by a healthy margin.

4. Debt yield. NOI divided by the loan amount — a lender’s check on how quickly the property’s income alone could repay the debt, independent of rate or value. Commonly a floor around 8–10%.

The through-line: in commercial lending, the property qualifies. The borrower’s net worth, liquidity, and experience matter — but NOI, cap rate, DSCR, and debt yield are what get the deal approved. Point a borrower at the commercial property calculator to model it live.

The deals that are really commercial files

Sort the deals you can’t place by cause. These aren’t dead — they’re commercial referrals:

The deal is…	Commercial answer
A 5+ unit apartment building	Commercial multifamily, underwritten on NOI
A mixed-use building (retail down, apartments up)	Commercial, regardless of unit count
A retail strip center, office, or industrial building	Commercial by asset class
A self-storage facility or small mobile home park	Specialized commercial
A portfolio of rentals a borrower wants under one loan	Commercial blanket / portfolio
An investor graduating from a fourplex to a 10-unit	The exact residential-to-commercial jump

If the property produces income and it’s bigger than a fourplex or isn’t residential at all, it’s a commercial referral. Send us the scenario with the rent roll and we’ll tell you same-day whether it pencils.

Rates, terms, and timelines to set expectations

You won’t quote these, but framing them makes you the advisor who prepared the borrower:

• Down payment: typically 25–35% — commercial leverage is more conservative than residential.
• Term & amortization: often a shorter term (5–10 years) on a longer amortization (25–30 years), sometimes with a balloon; longer fixed options exist by program.
• Rate: set by asset class, DSCR, debt yield, and sponsor strength.
• Recourse: many commercial loans are non-recourse at lower leverage, recourse at higher — a concept most residential borrowers have never encountered.
• Close: 45–90 days — commercial appraisal, third-party reports, and lender committee take time.

The framing that keeps a borrower grounded: a commercial loan is slower and needs more down, but it unlocks a scale residential financing can’t touch — and it’s underwritten on the building’s performance, so a strong asset can carry a borrower whose personal income would never qualify residentially at that size.

A worked example you can walk a borrower through

Your client’s 12-unit building: 12 units at $1,500/month, 5% vacancy, operating expenses running 40% of effective income.

• Gross potential rent: 12 × $1,500 × 12 = $216,000/year
• Less 5% vacancy: ~$205,000 effective gross income
• Less 40% operating expenses: NOI ≈ $123,000
• Implied value at a 6% cap: ~$2,050,000 (supports the $2,000,000 price)
• Loan at 70% LTV: ~$1,400,000
• Annual debt service at 7.5% on 30-yr am: ~$117,000 → DSCR ≈ 1.05 (tight)
• The lesson: at this price and rate the deal is thin on coverage; the borrower may need more down, a lower rate, or higher rents to clear a 1.20 DSCR

That last point is the value you add: you can show the borrower why the lender will push back and what levers move the deal — before they’re blindsided in underwriting. That’s advisory credibility no rate quote buys.

How the commercial file moves, step by step

Knowing the sequence lets you set expectations honestly:

Stage	What happens
1	Borrower submits rent roll, trailing-12 operating statements, purchase price, and sponsor financials
2	Lender builds NOI, tests DSCR/debt yield, and sizes the loan
3	Term sheet / LOI issued; borrower signs and deposits
4	Third-party reports ordered — commercial appraisal, often environmental and property condition
5	Underwriting / loan committee review
6	Closing — 45–90 days from start on a well-documented file

The biggest delay is incomplete property financials. Coach the borrower to have a clean rent roll and trailing-12-month operating statements ready at intake, and the file moves.

What your borrower will ask you — and how to answer

“Why do I need 30% down when I only put 20% on my rentals?” Because commercial leverage is more conservative and the loan is sized by the building’s cash flow and debt yield, not just LTV. More down often means better terms and an easier approval.

“They keep asking about NOI and cap rate — what are they really checking?” Whether the building’s income supports the loan. NOI drives value (via cap rate) and coverage (via DSCR). It’s the same instinct as your DTI check — just aimed at the property instead of the person.

“Is this recourse or non-recourse?” Depends on leverage and program. Lower-leverage deals are often non-recourse; push leverage up and lenders usually want a personal guarantee. It’s a real negotiation point.

“Why is this so much slower than my house loans?” Commercial appraisal and third-party reports alone take weeks, and there’s a committee. Plan on 45–90 days and you’ll never be caught off guard.

“Can I roll several rentals into one loan?” Yes — a blanket/portfolio loan does exactly that, and it’s a common move for an investor consolidating a scattered portfolio.

A second example: the mixed-use building

Your client wants a $900,000 mixed-use property — two retail bays on the ground floor, four apartments above.

• Why it’s commercial: mixed-use is a commercial asset class regardless of the four residential units — a conventional lender won’t touch it
• Underwriting: blended NOI from retail leases + residential rents, tested at DSCR 1.25
• Down payment: ~30%, with attention to the retail tenants’ lease terms and creditworthiness
• What you did: recognized that “it has apartments” doesn’t make it residential, and routed it before the client called a bank

The lesson: unit count alone doesn’t classify a property. The moment there’s commercial space in the mix, it’s a commercial referral — and knowing that instantly is what separates you from the LO who wastes two weeks trying to force it into an agency box.

Commercial vs. DSCR vs. agency: a cheat sheet

	Commercial (5+ / mixed-use)	DSCR (1–4 unit)	Agency (your rate sheet)
Property size	5+ units, or any commercial	1–4 residential units	1–4 residential units
Underwritten on	NOI / cap rate / DSCR / debt yield	The property’s rent vs. PITIA	The borrower (DTI/income)
Down payment	25–35%	20–25%	As low as 3–20%
Close	45–90 days	Faster than agency	30–45 days
Recourse	Often negotiable	Typically recourse	Recourse

The pattern to internalize: your investor client’s journey runs from agency → DSCR → commercial as their portfolio grows. If you can hand off cleanly at each step instead of losing them at the boundary, you keep the whole relationship across every stage of their career.

Your move: refer it or broker it

You don’t underwrite commercial loans, order third-party reports, or carry the risk. You do one of two things:

Refer it. Send the borrower and the property financials; Jaken Finance Group originates and funds; you’re paid a referral fee. The right default for most residential LOs.

Broker it. Stay on the file and broker it through Jaken Finance Group for broker compensation.

The compliance note specific to you: your consumer-mortgage referral-fee limits come from RESPA, which governs consumer-purpose residential transactions. A commercial or 5+ unit multifamily loan is a business-purpose commercial loan — a different regulatory world. That changes the analysis, but program rules and state licensing both apply, so confirm your specifics with compliance or counsel before accepting a fee.

The simplest compliant start is our referral-partner program: you flag the deal, we handle the commercial process and disclosures, and you keep the client through every stage of their portfolio growth. Prefer to stay hands-on? Become a Jaken Finance Group broker.

This guide is part of our complete financing playbook for loan officers — the deals outside the agency box and how to get paid on them.

The bottom line

Commercial and multifamily financing isn’t a product you’ll ever underwrite from a residential desk — it’s a boundary you learn to recognize. Five units. Mixed-use. Any income property bigger than a fourplex. The instant a deal crosses that line, it leaves your rate sheet and becomes a referral — and the LOs who keep their best investor clients are simply the ones who hand off cleanly at the boundary instead of losing the borrower to whoever could.

Your client is going to buy that 12-unit building. The only question is whether you’re still his lender when he buys the next three. Send us the scenario and we’ll tell you today whether it works.