For commercial real estate investors, Fannie Mae Multifamily loans may prove to be a feasible way of obtaining lower costing financing. It is one of the largest sources of capital within this market in the U.S.
Utilizing the Fannie Mae lending platform allows individuals to purchase and refinance multi-family homes, including senior housing, student housing, 5 or more unit apartments, and numerous other styles.
Investing using this financial tool is an excellent opportunity for many, but it is important to understand what it is and how it works before getting started.
Fannie Mae Loan Highlights
Eligible Properties: Multifamily properties including student housing, apartments, affordable housing, assisted living, mobile home parks, and health care facilities.
Loan amount range: Minimum $1,000,000. Fannie Mae DUS program minimum is $3,000,000
Interest Rate: Fixed rates vary. Floating Rates from 2.30% over LIBOR. See current LIBOR Rates
Loan Term: 5 to 30-year fixed-rate loan terms are available
Amortization: Up to 30 years
Maximum LTV: 80%
Minimum DSCR: 1.25x
Minimum Debt Yield: 7-8%
Recourse: Non-recourse with standard "bad boy" carve-outs
Prepayment: Yield maintenance. No prepayment premium from final 90 days
Advantages of Fannie Mae Loans
- Student and military tenants: It is possible to have up to 80 percent of the tenants within these properties be either students or military tenants. If the concentration rises above this, though, the military or student housing programs from Fannie Mae (specific to these needs) must be used instead.
- Flexible terms: These loans provide borrowers with flexible terms to fit their specific needs. This generally includes amortization options for between 5 and 30 years.
- LTV allowance: Unlike other types of real estate requiring a much less flexible loan to value ratio, these loans allow for up to 80 percent. This applies to conventional properties and enables borrowers to secure more financing than they could otherwise.
- Property type flexibility: Aside from the noted student and military tenants, these loans can be used for properties such as senior developments, manufactured housing communities, and others, providing easier access all around.
Disadvantages of Fannie Mae Loans
- Strict occupancy requirements: Borrowers must ensure the property’s tenants meet any specific requirements set under the loan terms. That may include commercial space as well as student housing limitations.
- Borrower requirements: There are numerous borrower requirements in place depending on the loan type. This includes funding provided only to borrowers with ample experience they can prove. Additionally, borrowers must have a net worth that is at least equal to the amount that they are requested from the loan. Liquidity is also important and must be 9 to 12 months of debt service after any cash injections are made. There are credit score requirements as well (680 or higher) and there may not be any recent negative credit events for the borrower. Additionally, these loans are available to only single-asset U.S. borrowers who have proper U.S. ownership. It is possible to obtain these loans with indirect foreign ownership with proper structuring in place.
- Documentation: A range of documentation requirements are present on these loans. Due diligence reports and pre-closing documentation can take time to process, slowing down the process. There is no way to speed this process up, which may make it difficult for some property borrowers to navigate the process quickly. More so, this may make it more complex to borrow in some situations.
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What Are Fannie Mae Multifamily Loans?
Fannie Mae Multifamily has been a reliable source of funding for investors in multifamily properties for over three decades. Fannie Mae’s Delegated Underwriting and Serving (DUS) model enables an easy way to secure financing for the purchase of these properties.
The organization offers several options when it comes to apartment and multifamily financing. There are a few key differences between these loans. For example, they are non-recourse loans. The loans are also priced to a 30-year term and maintain a fixed rate throughout that time. In addition to that, there is 80 percent leverage. All of these features help to make these loans a much more attractive option than other financing offers available for this type of commercial investment.
To obtain a Fannie Mae loan, individuals applying for it must provide ample documentation and show their experience in the sector. This often includes providing a formal application and a plan for using the funds. It may include a trailing 12-month operating statement as well as current rent roll and occupancy reports (that include lease-end dates). In addition to this, the agency requires interior and exterior photos of the property to be taken or displayed on a website.
Borrowers must also provide a personal financial statement that shows a clear indication of owned real estate by that person. The agency also expects to learn more about the borrower’s current multifamily properties, if any. If none are owed, they then require a real estate resume that outlines their experience in the industry.
Types of Fannie Mae Loans to Consider:
Several types of opportunities exist from these agency multifamily loans. Individuals should consider all options before making a borrowing decision. Here are several types to consider.
Fannie Mae Standard DUS
The Standard DUS Fannie Mae loan is the most commonly used. This type of loan product is generally used for the purchase of or refinancing properties with five or more units. These are for existing as well as stabilized properties that fit this style. This type of loan has a minimum amount of $5 million, though in some markets this jumps to $7 million. The Standard DUS mortgage is the most common option most commercial borrowers seek out.
Fannie Mae Small Loans
A secondary option, as its name implies, applies to those who need Fannie Mae Multifamily Loans that are smaller. These loan products can be used for the purchase of or refinancing of existing property. Generally, this includes properties with 5 to 50 units. The key difference in this type of loan is that the loan amounts are typically between $750,000 and $5 million. This jumps to $7 million in some markets. These loans can only be used on existing and stabilized properties.
Fannie Mae Affordable Housing
Fannie Mae Affordable Housing (MAH) loans are those specifically meant to provide more sustainability financing for investors aimed at providing communities with affordable housing. These loans are designed to preserve the affordability of the rental market in key areas and focus on subsidized areas. These loans typically are longer-term financing opportunities. They also offer competitive interest rates and more flexible terms than others (both variable and fixed rates are available). These loans are designed for specific types of property including Low Income Housing Tax Credit deals, RAD-Eligible properties, HUD Section 8 HAP contract properties, Section 202 and 236 of the National Housing Act loans, as well as Rural Housing Service Section 515 loans (these are only for existing homes). These loans have more flexible underwriting requirements in affordable developments. The terms range from 5 to 30 years.
Fannie Mae Green Financing
Fannie Mae Green MBS is a type of loan that applies for fixed-income single asset properties. These are securities that are backed by a single property with a single loan. The investor must be taking some measures to apply environmentally friendly and financial features to the asset. This includes loans that are competitively priced for those investors who invest in energy and water efficiencies within their properties. These loans provide preferential pricing and added loan proceeds for retrofits. A Green Building Certification may provide borrowers with better pricing and borrowing power.
Fannie Mae Manufactured Housing
This type of financing applies to most types of manufactured housing, including mobile home parks. These loans are designed to reduce costs associated with these properties, aiding in keeping them more affordable for users. To obtain these loans, the property must be a high-quality property rated by the condition and stars of the park based on Fannie Mae’s star rating. These loans provide for fixed rates from 5 to 30 years with interest-only payments available in some cases. These are also flexible prepayment options afforded with these loans.