The quick read: You finance a 5 to 20 unit apartment building in the $1M to $5M band with a commercial multifamily loan sized on the property's net operating income, not your salary. The lender type follows the business plan: a community bank or credit union for relationship-priced recourse debt, an agency small-loan execution for long fixed-rate debt on a stabilized building, a DSCR loan when you want light personal documentation, and a bridge loan when the building needs work before it can qualify for permanent debt.
The building itself carries the loan. Every lender type in this band starts with the same arithmetic — net operating income divided by annual debt service — and then applies its own leverage ceiling, recourse posture and timeline. Most commercial banks require a debt service coverage ratio of 1.15 to 1.35, according to Wikipedia's debt service coverage ratio entry, and the federal supervisory guideline for bank real estate lending in 12 CFR Part 34 caps improved property at 85% loan-to-value. What separates the lenders is everything after that: who signs a personal guarantee, how long the rate is fixed, and what slows the file down.
Why does a 5 to 20 unit building need a commercial loan instead of a home mortgage?
A building with five or more units falls outside the one-to-four family residential lending rules, so lenders underwrite it as income-producing commercial real estate and size the loan on the rent roll and operating statement rather than on your personal income. Federal credit union regulation draws that exact line in its business-lending rules.
Under 12 CFR 723.8, a loan that is "fully secured by a lien on a 1- to 4-family dwelling" is excluded from a credit union's aggregate member business loan limit. A five-unit building is not, so the loan counts as business lending the moment you cross from four units to five. Banks treat the jump the same way in practice: the file moves from a mortgage desk to a commercial real estate desk, and the questions change.
What the commercial desk asks for:
Underwriting basis: trailing twelve-month operating statement, current rent roll, and the lender's own view of stabilized income and expenses.
Primary sizing test: debt service coverage ratio, which Wikipedia's entry defines as net operating income divided by debt service.
Secondary sizing test: loan-to-value against an appraisal that leans on the income approach.
Sponsor review: your experience running rental property, liquidity left after closing, and net worth relative to the loan.
That last line is where a first-time buyer of a twelve-unit building feels the difference. A residential lender asks whether you can pay; a commercial lender asks whether the building can pay, and whether you can run it if occupancy dips. For the product-level overview of this size band, see small multifamily loans.
Which lender types fit a $1M to $5M apartment building?
Five lender types regularly finance 5 to 20 unit buildings in the $1M to $5M band — community banks, credit unions, agency small-loan lenders, DSCR lenders and bridge lenders — and they differ less on the sizing math than on leverage ceilings, personal recourse, how long the rate is fixed, and what controls the closing timeline.
| Lender type | Unit / size fit | Leverage | Recourse | Speed driver |
|---|---|---|---|---|
| Community bank | Strong fit across 5 to 20 units; loan sized to the bank's local book | Coverage binds first; supervisory ceiling of 85% LTV on improved property | Usually a full or partial personal guarantee | Credit committee calendar and the appraisal |
| Credit union | Members' 5 to 20 unit buildings; counts against the 1.75x net-worth business-loan cap | Similar to banks; coverage binds first | Usually a personal guarantee | Credit committee, plus how much room is left under the cap |
| Agency small-loan lender | Stabilized buildings that meet current program rules; confirm caps on the live term sheet | Program-set; confirm on the current term sheet | Often non-recourse with bad-act carve-outs | Third-party reports and the lender's delegated authority |
| DSCR lender | Buildings whose in-place rents cover the debt; entity borrowers | Set by each lender's coverage floor and rate | Varies by lender; a guarantee is common | Appraisal and rent schedule, with light personal documentation |
| Bridge lender | Value-add: vacancy, deferred maintenance, below-market rents | Sized on as-is value and budget; many hard money lenders stop at 65% of current value | Usually recourse | Asset-based review; the quickest closes in the band |
Read the table by column rather than by row. If you need the longest fixed rate and no personal guarantee, the agency row is the one to chase. If you need to close on a building that will not pass a coverage test today, the bridge row is the only one that works. Everything in between is a trade of leverage against recourse and price.
The 85% figure is a supervisory ceiling from the interagency real estate lending guidelines published as Appendix A to Subpart D of 12 CFR Part 34, not a typical offer. On most 5 to 20 unit buildings the coverage test binds well before it, which the next section shows with numbers.
How do lenders size the loan on a small apartment building?
Lenders size a small apartment loan by running two tests — the debt service coverage ratio against net operating income and a loan-to-value cap against the appraisal — and then lending the smaller of the two results, which on most 5 to 20 unit buildings means coverage decides the loan amount.
Wikipedia's debt service coverage ratio entry reports that in commercial real estate the minimum DSCR set by lenders is 1.25, and that most commercial banks require 1.15 to 1.35. A ratio below 1 means negative cash flow: the building does not earn enough to pay its own mortgage, and no lender type in this table will size a permanent loan on it.
Here is an illustrative sixteen-unit example. The purchase price, income, rate and amortization are assumptions for the arithmetic, not a quote or a term sheet.
Purchase price (illustrative): $3,000,000 for a sixteen-unit building.
Net operating income (illustrative): $195,000 a year after vacancy, taxes, insurance, repairs and management.
Maximum annual debt service at a 1.25 coverage floor: $195,000 divided by 1.25, or $156,000.
Loan that $156,000 supports: roughly $2,050,000 at an illustrative 6.5% rate on a 30-year amortization.
Loan the 85% supervisory ceiling would allow: $2,550,000.
Binding test: coverage, at about 68% of the price — so plan on roughly a third of the price in equity, plus closing costs and reserves.
Two levers move that number more than any rate negotiation: an underwritten expense load backed by real invoices rather than a lender's default assumption, and an interest-only period, which some lenders will size on. Lenders underwrite the in-place rent roll, not your projected rents, which is why value-add plans usually start on bridge debt. The underwriting detail specific to DSCR programs is covered in how DSCR loans underwrite small multifamily.
When does an agency small-loan execution fit a 5 to 20 unit building?
An agency small-loan execution fits a stabilized 5 to 20 unit building whose owner wants a long fixed rate and often non-recourse terms, but program names, size caps and eligibility rules change, so confirm the current term sheet on a live agency page before you plan around one.
Both government-sponsored enterprises have offered small-balance multifamily lines delivered through approved lenders, and those lines are the usual route to non-recourse permanent debt in this size band. This guide does not state a program cap: the current caps could not be confirmed on a live agency page at publication, so ask the lender for the term sheet it is quoting from and check its date.
What to expect mechanically, regardless of the program name:
Occupancy history: agencies lend on stabilized buildings, so a recent lease-up or heavy vacancy usually rules the building out until it has a track record.
Third-party reports: an appraisal, a property condition assessment and an environmental review, each ordered by the lender and each on its own timeline.
Reserves and escrows: replacement reserves plus tax and insurance escrows are common, and they reduce the cash the loan frees up.
Prepayment: yield maintenance or a declining schedule. If you might sell or refinance early, price the exit before you price the rate.
The prepayment line is the one that bites small owners. A long fixed rate is only cheap if you hold for most of the term; an owner who plans to sell after a renovation cycle can pay more in prepayment than the rate saved.
When is a community bank or credit union the better fit?
A community bank or credit union is usually the better fit when the building is small, the borrower has a local deposit relationship, and the owner will accept shorter fixed periods and a personal guarantee in exchange for a lender that can approve an unusual property in its own credit committee rather than against a national program rule.
Banks and credit unions usually hold these loans on their own balance sheets, which is what makes them flexible. A mixed-use ground floor, an older building, or a borrower with an uneven income history can get a hearing in committee that a program rule would not allow. The trade is recourse and a shorter fixed period that ends in a balloon or a rate reset.
Credit unions add one constraint banks do not have. Under 12 CFR 723.8, a federally insured credit union's net member business loan balances are capped at the lesser of 1.75 times its actual net worth or 1.75 times the minimum net worth required. A credit union close to that cap can decline a good loan for balance-sheet reasons that have nothing to do with your building, so ask early how much room it has. The membership, pricing and structure detail is in how credit union commercial real estate loans work.
Best fit: stabilized buildings, owners with local deposits, and properties a national program would treat as non-standard.
Watch item: the personal guarantee, and the date the fixed period ends.
When should a value-add buyer start with a bridge loan?
A value-add buyer should start with a bridge loan when the building's in-place income cannot pass a permanent lender's coverage test — high vacancy, deferred maintenance or below-market rents — because bridge lenders size on the asset and business plan and expect you to refinance into permanent debt once the rents are stabilized.
Wikipedia's hard money loan entry notes that many hard money lenders will only lend up to 65% of the current value of the property, that rates could be as low as 6% and as high as 14% or more, and that most hard money loans are used for projects lasting from a few months to a few years. Bridge lenders that focus on multifamily vary widely around those figures, which is why quotes should be compared side by side.
The cost of a bridge loan is the exit, not the coupon. Before you close, model the refinance: stabilized rents, the permanent lender's coverage floor, and a take-out rate higher than today's. If the stabilized building cannot size a permanent loan large enough to repay the bridge balance plus the renovation money, the plan needs more equity now, not optimism later.
Best fit: vacancy, a renovation budget, or rents meaningfully below market.
Watch item: extension fees, the maturity date, and whether the renovation budget is funded by draw.
How do you pick the lender type by business plan?
Pick the lender type by matching it to the business plan you will actually execute over the hold, because the same 5 to 20 unit building can be a bank loan, an agency loan or a bridge loan depending on its occupancy, your hold period, and whether you will sign a personal guarantee.
Stabilized, long hold, no guarantee wanted: an agency small-loan execution, if a current program fits the building.
Stabilized, local relationship, may sell or refinance early: a community bank or credit union.
Stabilized, entity borrower, light personal documentation: a DSCR lender.
Vacancy, renovation or below-market rents: bridge now, permanent debt after stabilization.
Purchase contract with a hard deadline: the lender type whose third-party report process fits your contract dates — ask each lender for its checklist and timeline on day one.
The deadline in your purchase contract is yours, and no lender type controls an appraiser's calendar. Share the contract dates with every lender up front, and let each one tell you in writing whether its process fits them before you commit to it.
How do you get lenders competing for a 5 to 20 unit apartment loan?
You get lenders competing for a 5 to 20 unit apartment loan by putting one complete package — rent roll, trailing operating statement, purchase contract and business plan — in front of several lender types at once, so bank, credit union, agency, DSCR and bridge terms arrive side by side instead of one at a time.
That is the work YieldStack does. YieldStack is a commercial mortgage brokerage, not a lender. The 5-minute submit takes the deal once and matches it against 20,000+ loan programs, with a median offer in under an hour, from an institutional 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.
Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed. Bring the rent roll, the trailing operating statement and the contract dates, and the comparison starts from the building rather than from a guess.
Submit your 5 to 20 unit apartment deal for side-by-side lender terms
The bottom line
A 5 to 20 unit apartment building is a commercial loan sized on net operating income, and coverage — not the loan-to-value ceiling — usually sets the amount. Choose the lender type by business plan: agency small loans for stabilized long holds, banks and credit unions for flexibility with recourse, DSCR lenders for light documentation, and bridge debt for value-add until the rents support permanent financing.
All dollar figures and rates in the worked example are illustrative. They are not a quote, a term sheet, or a prediction of what any lender will offer on your deal.