Mixed-use properties
A mixed-use property combines living space with commercial space, like a storefront with apartments above.
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How do you finance a mixed-use property?
Most mixed-use properties are financed with a commercial or non-QM loan, priced on the property's income, with larger down payments and shorter terms than a home loan. If the property is mostly residential and you live there, some residential programs allow limited commercial use. Standard HELOCs rarely lend on mixed-use buildings.
On this page
What lenders review
- Share of space that's commercial versus residential
- Leases and income from each space
- Zoning and the property's appraisal as mixed-use
Use a free calculator, or get your HELOC rate from Shawn.
Related
Blanket loans · DSCR loans
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Typical mixed-use properties
- A storefront with one or more apartments above
- A home with an attached office or small shop
- A small building with ground-floor retail and residential units
Pulling equity from mixed-use
Standard HELOCs rarely lend on mixed-use. Cash-out comes from commercial or non-QM loans that look at the property's rents. Expect 25%–35% equity to remain after the loan with many lenders.
When residential financing can still work
Conventional guidelines allow some business use on a one-unit home you live in, such as a home office, a small daycare or a beauty salon, as long as the property is primarily residential, the business use is legal under zoning, and the property's value comes mostly from its residential character. A storefront with an apartment above usually doesn't qualify.
Typical commercial or non-QM terms
- Down payment of 25%–35%.
- Terms of 5–10 years with longer amortization and a balloon, or 30-year non-QM options.
- Qualifying on the property's income (debt service coverage) and your credit.
- A commercial appraisal that values the income stream.
Getting equity out
HELOCs on mixed-use buildings are uncommon. Owners typically use a commercial cash-out refinance, a non-QM investment loan, or a HELOC on their own home if they live elsewhere.
Example
An owner lives in a two-bedroom apartment above a ground-floor shop she leases out for $3,500 a month. The building is worth $1,200,000 with $500,000 owed. Residential lenders decline because the property is mainly commercial. A commercial lender offers a cash-out at 65% loan-to-value, or $780,000, enough to pay off the $500,000 and provide about $280,000 before costs. The loan has a 25-year amortization with a 10-year balloon. She'll need to refinance or pay it off in year 10, a risk to plan for from day one.
Checklist
- Leases for each space.
- Zoning confirmation.
Also asked
Can I live in the apartment above my business and get a home loan?
Sometimes. If the property is primarily residential and meets residential program rules, a standard loan may work. A traditional storefront building usually needs commercial or non-QM financing even if you live upstairs.
Does a mixed-use building's business income count toward the loan?
For commercial loans, yes: the property's rental income from both spaces is central. For residential loans, your personal income is used, and rent from the commercial space may count with documentation.
Are interest rates higher on mixed-use property loans?
Usually, yes. Mixed-use loans typically carry somewhat higher rates than residential loans, with shorter terms or balloon payments. Strong rent coverage and a larger down payment improve pricing.
What zoning issues come up with mixed-use property loans?
The use must be legal under local zoning. Legal non-conforming uses can make lending harder, because if the building were destroyed, rebuilding the same use might not be allowed.
Can I use a HELOC on my primary home to buy a mixed-use building?
Yes, a HELOC on your primary home can fund the down payment on a mixed-use building, if the numbers on both properties work. The building itself would need commercial or non-QM financing.
Can I use a HELOC on my home to buy a mixed-use building?
Yes, for the down payment, if your debt-to-income ratio supports the HELOC payment. The building itself would be financed with a commercial or non-QM loan qualified on its rents. Make sure the building's income covers its own loan and the HELOC interest.
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Sources
Official sources behind this guide.
- What is the difference between a home equity loan and a HELOC? · Consumer Financial Protection Bureau
- What you should know about home equity lines of credit (booklet, PDF) · Consumer Financial Protection Bureau
- Regulation Z §1026.40: Requirements for home equity plans · Consumer Financial Protection Bureau