- Fannie Mae Multifamily Small Loans program targets smaller properties, including those which need more customized and flexible loan features.
Fannie Mae Small Loan Highlights
Eligible Properties: Properties include conventional multifamily properties, MAH homes (Multifamily Affordable Housing), student housing developments with over 5 units, and senior housing developments. Manufactured housing communities with over 50 pad sites may also qualify.
Loan borrowing options: $1 million as a minimum to $6 million maximum
Terms: Options from 5 to 30 year terms
Interest Rate: Fixed rate loans available, adjustable rate loans may be available, hybrid ARM loans may be available, some full-term and partial-term interest-only loans may also be available. See current interest rates.
Amortization: Loans available for amortization terms of up to 30 years.
Maximum loan-to-value: 80% available for most loans, for refinanced loans, 75%.
Minimum DSCR: 1.25x
Prepayment: Both yield maintenance or declining prepayment premium available
Borrower Requirements: Borrowers must have a net worth equal to the amount requested through the loan, liquid assets must be at least 6 months of required mortgage payments
Credit requirements: Varies by lender but typically requires a credit score of at least 680
Commercial limits: If commercial property exists with the multifamily loan, it must be no more than 35% of the net rentable area; commercial space must not contribute to over 20% of the effective gross income for the property
Approval time: Varies by project, but most close 45 to 60 days after investor application confirmation.
Non-Resource: Most are non-recourse loans with a “bad boy” carve out, though limitations may apply in some cases.
Advantages of Fanine Mae Small Loans
- Low Interest Rates: Typically, Fannie Mae small balance loan options have a very competitive interest rate compared to other types of loan options
- Easier Documentation: Unlike other Fannie Mae loans, there are fewer required documentation requirements with these loans. The entire process is more streamlined to make it faster and more efficient for applicants. These loans do not require tax returns, though some lenders may require them.
- LTV: With a loan-to-value of up to 80%, this type of loan offering can be highly competitive for investors looking for a significant amount of financial liquidity; most other loans have a lower LTV requirement meaning more out-of-pocket capital is used.
- Improvements: It is possible to include capital improvements in Fannie Mae Small Loans, including updates and renovations as well as changes to the footprint, within limitations established by the lender.
- Minimal Costs: There are few processing fees associated with these loans, reducing overall costs
- Non-Resource: Most loans are non-recourse, which means investors have less risk involved in taking out the loan (there are some exclusions to this, though).
- Rate-Lock: For those in the process of purchasing or considerations related to the project, there is a 30-to-180-day rate lock available, though investors must be committed at that point. It may be possible to extend that rate lock even longer with some lenders.
- Assumable: Non-resource loans are assumable though this requires the lender’s approval first, and a 1% fee is applicable.
Disadvantages of Fannie Mae Small Loans
- Reserves: Investors must have replacement reserves. This is $250 per unit minimum. Lenders may have the authority to waive the Replacement Reserve for some loans.
- Application Deposit: There is a $10,000 application deposit required at the time of applying.
- Occupancy requirements: Fannie Mae Small Loans have a 90% physical occupancy rule for 12 months prior to closing, which may be limiting to some properties. It may be possible to shorten this to 90 days in some situations.
- Rate Lock: While these loans offer a rate lock, they also have a fee required to be paid to lock in rates. That fee is typically 1 to 2% of the value of the loan. These fees are refunded at closing.
- Report Requirements: Small Loans require third-party reports. This includes a full appraisal of the loan, reduced physical needs assessment, as well as an environmental screening using the ASTM E-1528-14 protocol, with lenders potentially requiring additional information.
- Lender Fees: Lender fees are applicable and can range from $4,500 to $13,000. These fees typically include due diligence fees, third-party reports costs, and others. There is a lot of variation between lenders.
What Are Fannie Mae Multifamily Small Loans?
Fannie Mall Small Loans are very popular for investors of smaller multifamily properties, including some apartment complexes. Traditional Fannie Mae multifamily loans have a $3 million minimum, and they tend to have very long and detailed documentation requirements. That often makes them out of reach for these smaller investors.
Fannie Mae Small Loans have a minimum loan amount of $1 million. The application process is streamlined to be both faster and more efficient, with fewer hurdles for applicants to overcome. These loans typically offer lower interest rates. They also are typically non-resource loans, including those that are fully assumable, with some limitations.
For those who need financial support for smaller properties, Fannie Mae Small Loans can provide ample support. This is typically beneficial to smaller apartment complexes as well as other types of multifamily units but is not available on single-family structures. Limitations apply for many of these loans.
What Properties Are Fannie Mae Small Loans Suitable for?
The Fannie Mae Small Loans program is designed to meet the specific financing needs of smaller properties, including those which need more customized and flexible loan features
These properties tend to be in urban areas and may be more affordable overall. They tend to be close to area transportation options and jobs. That makes this housing market of particular importance to the community, and therefore, financing options need to fit the unique needs of these properties.
Fannie Mae created these Small Loans with the specific goal of supporting this niche multifamily housing sector. Part of their efforts to do this fall under their Delegated Underwriting and Servicing program. Since 2009, the organization has provided over $24 billion in liquidity to this particular market.
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