Start with the boundary, because it routes everything else: 1–4 unit property is residential financing; 5+ units is commercial. A fourplex is underwritten with residential tools — conventional agency loans or the DSCR loan product. The fifth unit moves the property into the commercial system on this page, where the borrower’s W-2 leaves the file and the property’s net operating income runs the underwriting: NOI, DSCR and debt yield, tested against sponsor experience, liquidity and occupancy history. Agency financing — Fannie Mae and Freddie Mac — is the price leader for stabilized apartments, and one of the two agency programs described below changed fundamentally in 2026.
General information, not financial advice.
Fannie’s small-balance channel (per its published term sheet at multifamily.fanniemae.com) lends up to $9 million nationwide, on 5–30-year terms with amortization up to 30 years, at a maximum 80% LTV and a minimum DSCR of 1.25×. Prepayment is by yield maintenance or a declining premium (the structures defined in commercial mortgage terms), and loans are non-recourse with standard “bad act” carve-outs. Fannie’s conventional-properties sheet adds an occupancy expectation: properties generally show stabilized occupancy (typically 90%) for 90 days before funding. A caution worth printing, because the error is widespread: an older Fannie small-loans sheet showing a $6 million cap still circulates online. The current sheet says $9 million — verify against the live term sheet at application, not against a downloaded PDF of unknown vintage.
Freddie Mac retired its Small Balance Loan (SBL) program on April 15, 2026 (SBL applications were accepted through April 30, 2026). If a lender, broker or article still quotes you “SBL” terms as a current program, it is describing a program that no longer exists. The replacement, per Freddie Mac’s April 2026 product sheet, is Optigo Conventional Small:
For the record — because legacy SBL pricing is what older comparison content is built on — SBL ran $1M–$7.5M with market-tiered DSCR floors (Top 1.20×, Standard 1.25×, Small 1.30×, Very Small 1.40×) and 80% max LTV (70% on refinances in small markets). Those are formerly numbers. Note also that Conventional Small is months old at this writing: minimums, unit caps and tier rules on a new program sheet deserve re-verification at application.
| Channel | Typical leverage | Coverage | Structure notes |
|---|---|---|---|
| Fannie Mae Small | To 80% LTV | ≥1.25× DSCR | To 30-yr terms, non-recourse, YM/declining prepay |
| Freddie Mac Conventional Small | To 80% LTV (75% short terms) | ≥1.25× DSCR on amortizing payment | $2M–$10M, 5–50 units, non-recourse |
| Bank / portfolio | ~65–75% LTV | Lender-set | Recourse, 5–10-yr balloons on 25–30-yr amortization — see portfolio loans |
| CMBS | ~65–75% LTV | ~1.20–1.35× | Defeasance prepay, non-recourse, ~$2M+ practical minimums |
| HUD/FHA 223(f) | Program-set | Program-set | Larger apartment acquisitions/refinances; practical minimums around $2M per lender sources |
The CMBS row is a summary only — the conduit product in depth lives in Part 1 of this cluster. What the table shows is the shape of the market: the agencies trade process and paperwork for price, leverage and non-recourse terms; banks trade price for speed, flexibility and a relationship; CMBS trades everything for scale and non-recourse on properties that don’t fit agency boxes.
Whichever channel, the file is built from the property outward: NOI from the rent roll and T-12, DSCR and debt yield against the proposed loan, the sponsor’s track record with comparable properties, post-closing liquidity, and the property’s occupancy history — the stabilized-occupancy expectation is an agency rule, but every channel prices thin occupancy as risk. The ratio mathematics itself — how DSCR and debt yield are computed and gamed — is in how lenders evaluate a commercial property. Sponsors graduating from 1–4 unit deals should expect the biggest cultural shift to be documentation: the property gets a fuller audit than you do, but you get one too.
Agency execution is thorough rather than fast. The step-by-step process applies here with agency characteristics layered on: third-party reports are ordered to agency standards, the stabilized-occupancy test is verified rather than asserted, and non-recourse carve-outs are negotiated at the commitment stage, not discovered at closing. Sponsors choose agency debt knowing the file will take longer than a bank’s — the trade is deliberate: slower paper for cheaper, longer, non-recourse money. Borrowers working against a purchase contract deadline should surface that deadline before selecting the channel, because the channel that wins on price can lose on the calendar, and a failed closing costs more than a wider rate. Conversely, a refinancing borrower with no external deadline is the agency system’s ideal customer: time to satisfy every condition, and a long hold over which the pricing advantage compounds.
Loan size quietly routes the file. Freddie Mac’s Conventional Small starts at $2 million, CMBS has practical minimums around $2 million, and HUD 223(f) sits in the same neighbourhood per lender sources — so a 6-unit property needing a $1.1 million loan is, in practice, a bank or portfolio file, whatever its ratios. Between $2 million and the agency caps ($9 million at Fannie, $10 million at Freddie), the agency channels compete directly and the choice turns on term, prepay structure and unit count — Freddie’s small program caps at 50 units, Fannie’s small sheet does not frame the same cap. Above the caps, borrowers graduate to standard agency, CMBS or life-company execution.
Is a 4-unit property commercial or residential? Residential. The commercial line sits at five units: 1–4 unit properties finance through residential channels, including conventional agency loans and DSCR loans. Five or more units moves the property into commercial underwriting — NOI-based, with agency multifamily, bank, or CMBS channels.
What DSCR do agency multifamily loans require? Fannie Mae’s Small Mortgage Loans set a 1.25× minimum DSCR, and Freddie Mac’s Optigo Conventional Small also sets 1.25× — calculated on an amortizing payment. CMBS lenders cluster around 1.20–1.35× by property and market.
Are multifamily agency loans non-recourse? Yes — both Fannie Mae small loans and Freddie Mac Conventional Small are non-recourse with standard carve-outs (fraud, misappropriation, environmental and similar “bad acts” restore personal liability). Bank and portfolio multifamily loans, by contrast, are commonly recourse.
Sources: Fannie Mae Multifamily Small Mortgage Loans term sheet (multifamily.fanniemae.com); Freddie Mac Optigo Conventional Small product sheet (April 2026) and legacy SBL term sheet (mf.freddiemac.com), program retirement as reported by creterminal and multifamily-usa; lender-guide consensus for CMBS and HUD 223(f) bands. Freddie Mac small-loan terms are months old — re-verify at publication. Currency verified 2026-10-23.