Multi-family properties typically require 15 to 25 percent down, depending on the loan type and number of units

A multi-family property is any building with two to four units (sometimes called a small multi-family) or five or more units (commercial multi-family). The down payment you need depends almost entirely on which loan program you use and how many units the building has. A duplex financed with an FHA loan might need 3.5 percent down. The same duplex financed with a conventional loan could require 20 to 25 percent. A ten-unit apartment building will almost always require more down than a four-unit building, even with the same lender.

The number of units matters because lenders draw a line between residential and commercial lending. Buildings with one to four units are usually treated as residential mortgages, which means you can use FHA, VA, or conventional loans with lower down payments. Buildings with five or more units are treated as commercial real estate, which means you are borrowing from a commercial lender and the down payment floor is typically 20 to 25 percent, sometimes higher.

Key Takeaways

  • Two to four unit buildings can use residential loan programs with down payments as low as 3.5 percent (FHA) or 5 to 10 percent (conventional), while five-plus unit buildings require 20 to 25 percent minimum.
  • Lenders view buildings with five or more units as commercial real estate, which means stricter lending rules and higher down payment requirements than residential mortgages.
  • Your down payment amount also depends on your credit score, the property's condition, and whether you plan to live in one of the units.
  • Commercial lenders for five-plus unit buildings will examine the building's rental income and expenses, not just your personal finances.

Two to four unit buildings: residential loan programs

If you are buying a duplex, triplex, or four-unit building, you can use the same loan programs available to single-family home buyers. This is the key advantage of staying under five units. An FHA loan on a two to four unit property requires 3.5 percent down if your credit score is 580 or higher. A conventional loan on the same property typically requires 5 to 10 percent down, though some lenders will go as low as 3 percent if your credit score is above 740 and your debt-to-income ratio is low.

If you plan to live in one of the units, lenders treat the property as owner-occupied, which lowers the down payment requirement further. If you are buying as an investment (renting all units to tenants), the down payment goes up. A conventional loan on an owner-occupied two-unit building might require 10 percent down, while the same building as a pure investment property could require 15 to 20 percent down.

VA loans are available to may be able to access veterans and service members and require zero down payment on one to four unit properties, though the property must be owner-occupied. USDA loans also offer zero down in may be able to access rural areas, again for owner-occupied properties only.

Five or more unit buildings: commercial lending

Once you cross into five units, you enter commercial real estate lending. The down payment floor is almost always 20 to 25 percent, and some lenders require 30 percent or more. There is no FHA, VA, or USDA equivalent for commercial multi-family. You are working with a commercial lender, a bank's commercial real estate division, or a portfolio lender (a lender that keeps loans on its own books rather than selling them).

Commercial lenders care less about your personal credit score and more about the building's financial performance. They will ask for the last two years of tax returns showing the building's rental income and operating expenses. They calculate the debt service coverage ratio (DSCR), which is the building's annual net income divided by the annual loan payment. Most lenders want a DSCR of at least 1.2, meaning the building's income must be 20 percent higher than the annual debt payment. A building that barely covers its own mortgage payment is riskier to lend on, so you may need to put more money down to offset that risk.

If the building is currently vacant or underperforming, lenders may require 25 to 35 percent down because they are betting on your ability to stabilize it, not on its current income. If the building is fully leased and has a strong income history, 20 to 25 percent down is more typical.

How credit score and property condition affect down payment

On residential loans (two to four units), a higher credit score directly lowers your down payment requirement. A score above 740 on a conventional loan might get you 5 percent down; a score between 620 and 680 might require 10 to 15 percent. FHA loans are more forgiving on credit but charge mortgage insurance premiums that make the loan more expensive overall.

On commercial loans (five-plus units), your personal credit score matters less than the property's condition and income. A lender will order an appraisal and a Phase I environmental assessment. If the building needs significant repairs, the lender may require a higher down payment or ask you to escrow money for repairs before closing. If the roof is failing or the HVAC system is at the end of its life, expect to put down more cash.

Down payment information and seller concessions

Down payment information programs exist for single-family homes and sometimes for owner-occupied duplexes, but they are rare for larger multi-family properties. Some state housing finance agencies offer down payment help for two to four unit owner-occupied buildings, but the programs vary widely by state and are often limited to first-time buyers with income below a certain threshold.

Seller concessions (where the seller contributes toward your closing costs) are allowed on residential loans but are capped. On an FHA loan, the seller can contribute up to 6 percent of the purchase price toward your down payment and closing costs combined. On a conventional loan, the cap is usually 3 to 6 percent depending on your down payment size. On commercial loans, seller concessions are rare and usually not allowed.

Timing and cash reserves

Lenders do not just want to see that you have the down payment; they want to see that you have it in the bank for a certain period before closing. Most lenders require proof that the down payment funds have been in your account for at least 60 days. If you received a gift from a family member, you will need a signed gift letter stating that the money does not need to be repaid, and the lender will still want to see the funds in your account for 30 to 60 days after the gift arrives.

On commercial loans, lenders also want to see cash reserves after closing. If you are putting 25 percent down on a $2 million five-unit building, the lender may require you to have an additional 6 to 12 months of the building's operating expenses in reserves. This is separate from your down payment and is meant to cover vacancies or unexpected repairs.

Frequently Asked Questions

Can I use a personal loan or line of credit for the down payment?

No. Mortgage lenders require that down payment funds come from your own savings, gifts from family members, or retirement accounts (with restrictions). A personal loan or credit line counts as new debt and will increase your debt-to-income ratio, which may disqualify you or require a larger down payment to compensate.

What if I am buying a four-unit building as an investment property?

You can still use a residential loan program, but the down payment will be higher than if you lived in one unit. Most conventional lenders require 15 to 20 percent down on a four-unit investment property. FHA loans are not available for investment properties at all.

Do I need a larger down payment if the building is in poor condition?

Yes, especially on commercial loans. Lenders will order an inspection and appraisal. If major systems are failing or the building needs significant repairs, the lender may require 25 to 35 percent down or ask you to escrow repair costs at closing. On residential loans, the lender may straightforward refuse to lend if the property does not meet minimum condition standards.

What is the difference between a portfolio lender and a bank?

A portfolio lender keeps loans on its own books and has more flexibility on down payment requirements and credit score thresholds. A bank typically sells loans to investors and must follow stricter guidelines. Portfolio lenders are often willing to lend on five-unit buildings with 15 to 20 percent down if the property's income is strong, while banks may require 25 percent or more.

Can I put down less than 20 percent on a five-unit building?

Rarely. Some portfolio lenders will go as low as 15 percent if the building has strong rental income and you have significant cash reserves, but this is uncommon. Most commercial lenders treat anything below 20 percent as high-risk and will charge a higher interest rate or require additional reserves to compensate.