I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. The 5–10 unit middle ground is genuinely complex — too large for residential programs, too small for most institutional lenders. I help California investors navigate these commercial multifamily structures every day. Call (800) 239-1103.
5–10 unit apartment buildings occupy a unique middle ground in California real estate investing — too large for residential loans, too small for most institutional debt. Here’s how financing actually works.
Why 5+ Units Means Commercial Financing
Properties with 5 or more residential units are classified as commercial real estate for financing purposes, regardless of how residential they look. This means no Fannie Mae or Freddie Mac guidelines apply, no FHA programs, and lenders use their own commercial programs with different rate structures and terms.
Loan Options for 5–10 Unit Properties
Small balance commercial loans: Community banks, credit unions, and small commercial lenders often have specific programs for 5–20 unit properties. Typical terms include 20–30 year amortization with a 5–10 year fixed rate, balloon at maturity, 25–30% down payment, and minimum DSCR of 1.20–1.25.
Agency small balance — Fannie Mae Multifamily: Fannie’s DUS program covers 5+ unit properties starting around $1M. California properties often qualify. Benefits include lower rates than banks, 30-year fixed options, and non-recourse availability.
Freddie Mac Small Balance Loan (SBL): Freddie’s equivalent program for 5+ unit properties. Competitive with Fannie for most California markets.
DSCR-based commercial loans: Qualify based on property income, not personal income. Minimum DSCR of 1.20–1.25 is standard — the property’s rent revenue must cover 120–125% of total debt service.
California 5–10 Unit Market Reality
Bay Area and Marin County 5–10 unit buildings are scarce and expensive. Cap rates vary significantly by submarket and market conditions, and at current interest rates, DSCR qualification often requires a substantial down payment — many investors budget 35–40% to make the numbers work in high-cost markets. Strong rent growth history helps in underwriting. Purchase prices for Bay Area 5-unit buildings typically start at $2M and go well above.
Due Diligence for Commercial Multifamily
Commercial underwriting requires a rent roll (current leases), trailing 12-month operating statements, a property condition report (sometimes Phase I environmental), and tenant estoppels. Budget 60–90 days to close on commercial multifamily — not 30 like residential. Line up your lender and documentation early.
Frequently Asked Questions — 5–10 Unit DSCR Loans California
Why can’t I use a regular mortgage for a 5-unit property in California?
Properties with 5 or more residential units are classified as commercial real estate by Fannie Mae, Freddie Mac, and FHA — regardless of how small or residential the building looks. This classification means residential mortgage programs (conventional, FHA, VA, DSCR residential) only apply to 1–4 unit properties. Once you cross into 5+ units, you need commercial financing: bank commercial real estate loans, agency multifamily programs (Fannie DUS, Freddie SBL), CMBS, or private bridge loans. The underwriting, documentation requirements, loan terms, and rate structure are all different from residential.
What DSCR is required for a 5–10 unit property loan in California?
Most commercial lenders and agency programs for 5–10 unit properties in California require a minimum DSCR of 1.20–1.25. This means the property’s gross rental income (after vacancy allowance) divided by total annual debt service (principal, interest, taxes, insurance) must equal at least 1.20. In California’s high-price markets like the Bay Area, achieving a 1.20+ DSCR often requires a 30–40% down payment because property prices are high relative to achievable rents. Lower cap rate markets require more equity to make the DSCR math work.
How long does it take to close on a 5–10 unit property in California?
Budget 60–90 days for commercial multifamily closings — significantly longer than the 21–30 days typical for residential transactions. Commercial underwriting requires a rent roll with all current leases, trailing 12-month operating statements, property condition report, and often a Phase I environmental report. Agency programs (Fannie DUS, Freddie SBL) have additional review steps and their own timelines. For time-sensitive acquisitions, some lenders offer bridge financing that closes faster (30–45 days) with the intent to refinance into permanent financing once the property is stabilized.
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | In lending since 2000, founded DiVita Home Finance in 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
