The quick read: It depends on the agency, and the income share usually binds before the square footage does. Fannie Mae's current Multifamily Guide (effective September 28, 2026) counts only leased, occupied commercial income, deducts 10% of it, and caps net commercial income at 20% of effective gross income. Freddie Mac's conventional guide sets no fixed percentage, and HUD's MAP Guide (March 2021 revision) allows commercial space up to 25% of net rentable area, with income limits of 15% to 30% of effective gross income depending on the program.
Fannie Mae counted commercial income: capped at 20% of EGI (Multifamily Guide, Part II, Section 203.01, effective 09/28/2026)
Fannie Mae commercial income deduction: 10% of actual commercial space income (same table)
Fannie Mae Form 4660 limits, as described in Lender Letter 17-24 (December 11, 2017): 35% of total rentable area and EGI
Freddie Mac conventional: no fixed percentage; income and square-footage shares must be acceptable to Freddie Mac (Guide Chapter 8.2(b))
HUD Section 221(d)(4): 25% of net rentable area and 15% of EGI (MAP Guide, Section 7.7.12.9, revision March 19, 2021)
HUD Section 223(f): 25% of net rentable area and 20% of EGI (same table)
This guide answers the threshold question only. For the full menu of lenders that finance apartments over retail, read our mixed-use lender overview; that page's agency row uses an 80%-residential rule of thumb, while the figures below come from the current agency guides and are dated to each one.
What does Fannie Mae's Multifamily Guide say about commercial space in 2026?
Fannie Mae's Multifamily Selling and Servicing Guide, effective September 28, 2026, limits commercial space mainly through income: lenders count only leased, occupied commercial rent, subtract 10% of it, and reduce net commercial income to 20% of effective gross income whenever it runs higher. Space and income limits also sit in Form 4660.
The income rule lives in the Required Underwritten NCF table for conventional loans in Part II, Section 203.01. Item 8 adds actual income from leased and occupied commercial space, Item 10 subtracts 10% of the actual commercial space income, and the footnote reads: if net commercial income is greater than 20% of EGI, then reduce to 20% of EGI. Vacant storefronts add nothing, however strong the asking rent.
Section 111 of Part II, Chapter 1 sets which leases count. The lender may underwrite commercial income only with an executed lease whose remaining term is at least 12 months after the loan's origination date, and only if the tenant is not an affiliate of the sponsor, borrower or key principal, is occupying the unit, is open for business, is paying rent and is not delinquent. Its guidance asks for comparable commercial rents, sub-market data showing low commercial vacancy, sustainable demand for the tenant's business and enough foot traffic to support it.
On space, Section 111.03 says a short-term rental lease is classified as commercial and is subject to the space and income limitations per Form 4660. Fannie Mae's Lender Letter 17-24, dated December 11, 2017, described those as the 35% commercial limitations for total rentable area and Effective Gross Income in Form 4660, and defined Commercial Space Percentage as leased commercial space divided by total space. The current guide pages we reviewed do not restate the 35% figure, so ask the lender to confirm the current Form 4660 limit for your deal.
How does Freddie Mac treat commercial space in a multifamily building?
Freddie Mac's conventional Multifamily Seller/Servicer Guide sets no fixed commercial percentage: Chapter 8.2(b) says both the commercial share of gross income and the commercial share of square footage must be acceptable to Freddie Mac, with commercial rent and lease terms supported by market comparison. Professional suites for physicians, dentists and attorneys count as commercial.
The chapter, in the Guide Bulletin Update dated August 25, 2026, also requires that the property contain five or more dwelling units and be designed, in whole or in part, for residential use. Commercial use must be permitted by local zoning and compatible with the property and the neighborhood. Freddie Mac reserves the right to ask for commercial leases, lease analyses, comparable commercial rent and vacancy data, a lease rollover analysis and a separate commercial income and expense history and pro forma.
The often-quoted 40% figures come from Freddie Mac's small balance loan rules. The SBL Guide Addendum, effective September 25, 2026, keeps the condition that underwritten commercial income is no more than 40 percent of Gross Potential Rent and that commercial square footage is no more than 40 percent of Net Leasable Space. The same addendum says Freddie Mac is no longer accepting SBL applications as of April 30, 2026, and exists for servicing existing loans, so do not plan a new acquisition around it.
What commercial space limits does HUD set for FHA-insured apartment loans?
HUD's FHA multifamily programs publish fixed limits: the MAP Guide, revised March 19, 2021, caps commercial space at 25% of total net rentable area for Sections 221(d)(4), 231, 220 and 223(f), and commercial income at 15% of effective gross income for 221(d)(4) and 231, 30% for 220 and 20% for 223(f).
Those space limits are looser than HUD Notice H 2011-23, issued September 1, 2011, which had set 10% of net rentable area for Sections 221(d)(3), 221(d)(4) and 231 and 20% for Sections 220 and 223(f); that notice expired August 31, 2012, so older summaries quoting 10% are out of date. The underlying regulation, 24 CFR 200.73, says a project may include such commercial and community facilities as the Commissioner deems acceptable. Community facilities such as a pool, resident parking or a fitness center do not count against the commercial limits, but parking reserved for non-residents does. The MAP Guide also caps underwritten commercial occupancy at the lesser of the market rate or 80% for programs other than 223(f), and at the lesser of the market rate, the actual occupancy or 90% for 223(f).
The waiver rules differ by limit. Regional Center Directors may waive the income limit so long as the property does not become primarily commercial rather than residential, and the guide steers new construction with commercial income above 20% toward Section 220 where the location is eligible. They may waive the space limit if the extra space will not harm residents, the market supports its occupancy, and easement, insurance, parking and zoning issues are resolved. Confirm the current MAP Guide figures with the HUD lender before you rely on them.
How do the agency limits compare side by side?
Side by side, the agency programs differ more on income than on space: Fannie Mae caps counted commercial income at 20% of EGI, Freddie Mac conventional sets no fixed number, and HUD's MAP Guide runs from 15% to 30% of EGI by section. Every program counts only commercial rent it can support with leases and market data.
| Lender type (source, date) | Commercial space limit | Commercial income limit | How commercial rent is underwritten |
|---|---|---|---|
| Fannie Mae conventional (Guide 203.01 and 111, effective 09/28/2026) | Per Form 4660; 35% of total rentable area per Lender Letter 17-24 (12/11/2017) | Net commercial income reduced to 20% of EGI | Leased, occupied space only; 10% deduction; 12+ months of remaining term; no affiliated tenants |
| Freddie Mac conventional (Guide Chapter 8.2(b), bulletin 08/25/2026) | Must be acceptable to Freddie Mac | Must be acceptable to Freddie Mac | Rent and lease term supported by market comparison |
| Freddie Mac SBL, servicing only (Addendum, effective 09/25/2026) | 40% of Net Leasable Space | 40% of Gross Potential Rent | New applications not accepted since 04/30/2026 |
| HUD 221(d)(4) (MAP Guide 7.7.12.9, revised 03/19/2021) | 25% of net rentable area | 15% of EGI | Separate commercial analysis; occupancy at the lesser of market or 80% |
| HUD 223(f) (same table) | 25% of net rentable area | 20% of EGI | Separate commercial analysis; occupancy at the lesser of market, actual or 90% |
| Bank, CMBS, life company, DSCR | Varies by lender | Varies by lender | Underwritten as mixed-use or commercial collateral |
How does commercial rent actually get underwritten?
Commercial rent gets underwritten more harshly than apartment rent: the agency counts only signed, occupied leases, takes a 10% deduction, and then applies its income cap, so a building whose shops earn a large share of the rent can be sized on less income than it collects. The cap, not the square footage, often decides loan size.
Hypothetical example, using Fannie Mae's conventional table:
Residential effective income (hypothetical): $400,000
Leased, occupied commercial rent (hypothetical): $150,000
Less 10% commercial deduction: $15,000, leaving $135,000 of net commercial income
Commercial share of EGI: $135,000 of $535,000, about 25%
Result: above 20% of EGI, so the lender reduces counted commercial income and the loan is sized on at least roughly $28,000 less income than the building produces
The arithmetic explains two common surprises. A ground-floor tenant with eight months left on its lease contributes nothing to Fannie Mae underwriting, because the guide wants 12 months of remaining term. And a sponsor who leases the storefront to his own business gets no credit for that rent, because affiliate tenants are excluded. Renew leases and fill vacancies before you apply, not after. For how agency programs fit the rest of the deal, see our agency loan program page.
What happens when a building has too much commercial space for an agency loan?
When the commercial share exceeds what an agency program will count, the building usually moves from multifamily financing into mixed-use or commercial financing from a bank, credit union, CMBS conduit, life company or private lender, and the terms are priced on the retail or office risk as well as the apartments.
Those lenders publish no common percentage, so treatment varies by lender. A bank may underwrite the whole building as mixed-use collateral and weigh the commercial tenants' credit and lease terms. A CMBS lender sizes on the combined net cash flow and the tenant rollover schedule. A DSCR or small-balance lender may accept a heavier commercial share on a smaller building but price it higher. Expect the leverage, rate, amortization and recourse to move toward commercial terms as the residential share falls. Our mixed-use loan program page outlines those structures.
The practical test is to calculate both ratios before you shop: commercial square footage divided by total rentable area, and net commercial income divided by effective gross income. Those two numbers tell you which programs are worth a full application.
Which loan does a building with shops downstairs qualify for, and how do you get it placed?
A building with shops downstairs qualifies for an agency multifamily loan when its commercial income and space stay inside the guide limits above; past them, it needs a bank, CMBS, life company or private mixed-use loan. The fastest route is to have several lender types price the same deal at once.
YieldStack is a commercial mortgage brokerage, not a lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing. Bring the rent roll split into residential and commercial, the commercial leases with remaining terms, and the square footage of each use. Send us the building's numbers and we will show which programs your commercial share fits.
The bottom line
The commercial limit for a multifamily loan is set by the program, not by a universal rule. Fannie Mae counts net commercial income only up to 20% of EGI and points to Form 4660 for space limits; Freddie Mac conventional judges each building; HUD publishes fixed limits by section. Measure both your income share and your space share, and pick the program that counts the most of your rent.