Residential loan or commercial loan

[Jody Ho]

I am under contract on a multifamily house. The house is marketed as 5-plex (Original owner did the conversion in 1950, with the certificate of occupancy), but most of the things were not fully updated to 5 units. Two units are sharing electrical circuit and panel, water heater, etc. In the county record, this is showed as a 4-plex. I did go to the city to clarify the status, they said it is not uncommon to have this kind of mismatch.

My question is about mortgage/loan on the property. Since 1-4 unit multifamily can use residential loan but 5+ unit will fall into the commercial side. In this particular case, will it qualify for residential loan? What does the bank or appraiser look for to confirm this is a 4-plex or 5-plex?

Thanks in advance

[Lacey Dillon]

Hi Jody!

This honestly depends on the visual set up of the subject property. The appraiser will review public record and inspect the entire property. However, if the subject looks like 5 individual units (ie. 5 doors: Unit A,B,C,D,E), the appraiser will make note on the inspection. This will raise a red flag for your mortgage lender and will be declined as a residential mortgage. Of course, going the residential route would be easier! Lower rates and higher LTV options. Hope it works out for you!

Lacey Dillon