Why Commercial Multifamily Loans Require 20 to 30 Percent Down
The 20 to 30 Percent Down Payment Standard
Commercial multifamily loans—mortgages on apartment buildings with five or more units—typically require a down payment between 20 and 30 percent of the purchase price. This is much higher than the 3 to 20 percent down payments common on single-family homes. A lender will not move forward without this larger cushion because multifamily properties are treated as business investments, not owner-occupied residences.
The exact percentage depends on the property condition, your credit history, the lender's risk appetite, and the loan program. A newer building in good condition with strong rental income might may have access to at 20 percent down. An older building, a first-time investor, or a market downturn can push the requirement to 25 or 30 percent. Some specialized lenders go lower—15 percent or even 10 percent—but charge higher interest rates and fees to offset the risk.
This is not a rule set by government. It is how commercial lenders price risk. The larger your down payment, the more of your own money is at stake if the property loses value or tenants stop paying rent. Lenders see that as a sign you are serious and will manage the property carefully.
Key Takeaways
- Commercial multifamily loans require 20 to 30 percent down because lenders treat apartment buildings as business investments, not homes, and demand a larger financial cushion.
- The exact down payment percentage varies by property age, condition, your credit score, rental income history, and the specific lender's standards.
- Specialized lenders may accept 10 to 15 percent down, but will charge higher interest rates and fees to compensate for the added risk.
- Your down payment is the difference between the purchase price and the loan amount—if you buy a $1 million building with 25 percent down, you pay $250,000 upfront and borrow $750,000.
Why Multifamily Down Payments Are Higher Than Single-Family
A single-family home is owner-occupied, which means the person living there has a strong personal incentive to keep paying the mortgage. A multifamily building is a rental business. If the market softens, tenants leave, or the owner runs out of cash, the property can go into default. Lenders price that business risk by requiring more of your own money down.
Multifamily properties also have more moving parts. You are managing multiple leases, tenant turnover, maintenance across more units, and vacancy risk. A single-family home has one occupant. If they stop paying, the lender forecloses on one property. If a multifamily building loses half its tenants, the income drops but the debt stays the same. Lenders protect themselves by requiring you to absorb more of that risk upfront.
How Down Payment Percentage Affects Your Loan Terms
The down payment you make directly shapes the interest rate, fees, and loan length a lender will offer. A 30 percent down payment signals low risk and typically earns you the lowest interest rate available. A 20 percent down payment is standard and carries a slightly higher rate. A 15 percent down payment—if the lender will accept it—comes with a noticeably higher rate and may include additional fees or a shorter loan term.
The relationship works both ways. If you have strong credit, a solid track record as a property manager, and the building generates reliable rental income, you may negotiate down to 20 percent even if the lender's standard is 25 percent. If you are new to multifamily investing or the property is in poor condition, the lender may require 30 or 35 percent down.
Interest rates on multifamily loans also depend on the loan program. Conventional commercial loans (from banks and mortgage companies) typically require 20 to 30 percent down. SBA loans and government-backed programs may allow lower down payments—sometimes 10 percent—but come with their own restrictions on property type, borrower experience, and use of proceeds.
Calculating Your Down Payment and Loan Amount
The math is straightforward. If you are buying a $2 million apartment building and putting 25 percent down, you pay $500,000 upfront and borrow $1.5 million. The down payment is the difference between what you pay and what you borrow.
Your down payment comes from your own savings, a partner's capital, or a combination of both. Some investors use a line of credit or a personal loan to fund part of the down payment, though lenders may require proof that this borrowed money is not itself a loan against the property. Lenders want to see that you have real skin in the game—your own cash or assets at risk.
The loan amount (the $1.5 million in the example above) is what you owe the lender. This is amortized over the loan term—typically 5, 10, 15, or 20 years for multifamily properties—and you pay interest on the full amount. A longer loan term means lower monthly payments but more interest paid over time. A shorter term means higher monthly payments but less total interest.
When Lenders Accept Lower Down Payments
Some lenders will accept 10 to 15 percent down on multifamily properties, but this is the exception, not the rule. These lenders typically specialize in higher-risk borrowers or properties—first-time investors, buildings in transition, or markets with softer demand. The trade-off is always higher interest rates and fees.
Government-backed programs can also lower the down payment requirement. The SBA's Community Advantage program, for example, may allow down payments as low as 10 percent on multifamily properties, though the borrower must meet specific criteria around business experience and the property must be in a designated area. These programs move slowly and have strict documentation requirements, but they can open doors for borrowers who do not have 20 to 30 percent saved.
Portfolio lenders—banks that hold loans on their own books rather than selling them to investors—sometimes have more flexibility on down payments. They may accept 15 or 18 percent down if the borrower has a strong relationship with the bank or a proven track record in multifamily investing. These lenders are harder to find and often require a minimum loan size, but they can be worth approaching if you are a few percentage points short of the conventional requirement.
What Happens If You Cannot Save 20 to 30 Percent
If you do not have the full down payment saved, you have several options. The first is to wait and save more. This is the slowest path but keeps you out of debt and gives you time to build credit and experience. The second is to find a partner or investor who will contribute capital in exchange for ownership or profit share. The third is to look for a lender with lower down payment requirements, knowing you will pay higher interest rates.
Some investors use a two-step approach: they buy the property with a higher down payment (or a smaller property) to build a track record, then refinance or buy a larger building once they have proven themselves. Lenders are more willing to negotiate on down payment if you have successfully managed a multifamily property before.
Another option is to negotiate the purchase price down. If you can buy the building for less, your down payment percentage stays the same but the dollar amount is smaller. This requires finding a motivated seller or identifying a property that is undervalued, which takes time and market knowledge.
Down Payment Versus Closing Costs and Reserves
The down payment is only one of the costs you pay upfront. Closing costs on a multifamily purchase typically run 2 to 5 percent of the purchase price and include appraisal fees, title insurance, legal fees, and lender fees. On a $2 million purchase, closing costs could be $40,000 to $100,000.
Lenders also require you to set aside reserves—usually 6 to 12 months of the building's operating expenses or debt service—in a separate account. These reserves sit untouched and prove to the lender that you can cover a vacancy spike or major repair without defaulting. Reserves are not part of the down payment, but they are part of the total cash you need to close the deal.
Before you start looking at properties, calculate the full cost: down payment plus closing costs plus reserves. If you are buying a $2 million building with 25 percent down, closing costs of 3 percent, and 9 months of reserves, you might need $600,000 to $700,000 in total cash. This is why many first-time multifamily investors start with smaller properties or partnerships.
Frequently Asked Questions
Can I use a gift from family to cover part of my down payment?
Yes, most lenders allow gift funds, but they require a signed letter from the family member stating the money is a gift, not a loan. The lender wants proof that you will not owe this money back, because that would be another debt obligation. Some lenders limit gifts to a percentage of the down payment—typically 20 to 30 percent—so you still have your own cash in the deal.
What if I have 15 percent down but the lender requires 20 percent?
You can ask the lender to accept 15 percent in exchange for a higher interest rate, additional fees, or a shorter loan term. Some lenders will do this. You can also look for a different lender with lower requirements, or wait and save the additional 5 percent. A third option is to negotiate the purchase price down by 5 percent, which reduces the dollar amount of down payment needed.
Does my down payment affect the monthly rent I can charge tenants?
No. Rent is set by market demand—what tenants in your area will pay for similar units. Your down payment affects your monthly mortgage payment and your profit margin, but not what you can charge. A larger down payment means a smaller loan, a lower monthly payment, and higher profit per unit. A smaller down payment means a larger loan and higher monthly payments, but the rent stays the same.
Can I use the building's rental income to help may have access to for the loan?
Yes. Lenders look at the building's current or projected rental income to determine whether it generates enough cash to cover the mortgage payment, property taxes, insurance, and maintenance. This is called debt service coverage ratio, or DSCR. A building that generates strong income may help you may have access to for a larger loan or negotiate a lower down payment, even if your personal income is modest.
What if the property appraises for less than the purchase price?
The lender will only loan up to a percentage of the appraised value, not the purchase price. If you agreed to pay $2 million but the appraisal comes in at $1.8 million, and the lender will loan 75 percent of appraised value, you can borrow only $1.35 million. You would need to pay $450,000 down instead of $500,000, or renegotiate the purchase price with the seller. This is why appraisals matter—they protect both you and the lender.