High-Leverage, Non-Recourse Apartment Loans From Fannie Mae
Fannie Mae, the government-sponsored enterprise (GSE) responsible for purchasing billions of dollars of home mortgages a year, is also one of the most prominent players in multifamily and apartment lending. In 2019 Fannie Mae Multifamily purchased more than $70 billion in apartment loans, including $7.8 billion in affordable housing loans and nearly $3 billion in student housing loans. Apartment borrowers generally like Fannie Mae loans since they're non-recourse, offer extremely low interest rates, and provide flexible loan terms with amortizations up to 30 years.
Just as it does for single-family mortgages, Fannie Mae does not directly lend to apartment borrowers; instead it empowers a group of approved lenders to make the loans to borrowers, utilizing a particular set of pre-approved guidelines. After a lender makes a loan, it's purchased by Fannie Mae, transferring the risk to Fannie and away from the lender. In addition to standard apartment loans, Fannie additionally offers financing for senior living and healthcare properties (like nursing homes), affordable properties (including those utilizing the LIHTC program), student housing properties, and mobile home parks. Like its counterpart, Freddie Mac, the agency also provides special benefits for green properties.
Fannie Mae Apartment Loan Terms
While Fannie Mae offers more than 20 apartment loan programs, we've provided some sample terms below to give you a better idea of what to expect.
- Loan Size: $1 million to $100 million+
- Loan Terms: 5, 7, 10 and 12-year terms (up to 30-years for Small Loans)
- Amortization: 30 years
- Leverage: Up to 80% max. LTV
- DSCR: Minimum 1.25x
- Recourse: Non-recourse with standard "bad boy" carve-outs
- Rate Lock: 30 to 90-day rate locks are generally available. Sometimes an early rate-lock is allowed, permitting a rate lock of up to 45 to 180 days.
- Prepayment Penalty: Options include both yield maintenance and step-downs. All prepayment penalties are waived if the loan is paid during the final 90 days of its term.
- Low interest rates.
- Leverage up to 80%.
- Early rate-lock options are available.
- Fannie Mae is selective when it comes to the quality of prospective properties.
- Borrowers are generally required to have a net worth equal to at least 100% of the loan amount.
- Credit scores of 680+ are also generally required.
- Multifamily ownership experience is typically necessary, though waivers may be granted under certain circumstances.
- Fannie Mae typically requires borrowers to have liquidity of at 9-12 months of debt service.
What Are The Most Popular Fannie Mae Apartment Loan Programs?
Fannie Mae Small Loans
Fannie Mae Small Loans are an ideal choice for borrowers who want apartment financing in amounts between $1 million and $6 million. These non-recourse loans offer LTVs up to 80%, DSCRs as low as 1.25x, and fixed and floating rate terms between 5 and 30 years. In contrast to Freddie Mac Small Balance Loans, which are ideal for apartment properties in larger multifamily markets, Fannie Small Loans typically offer better pricing in secondary or tertiary markets. Like most types of Fannie Mae apartment loans, Fannie Small Loans are available for student housing, seniors housing, affordable housing and eligible manufactured housing communities.
Fannie Mae DUS Loans
Fannie Mae DUS loans are generally geared to mid-size apartment investors, as they start at $3 million (with some exceptions) and have no set maximum loan amount. The DUS loan is one of the most flexible loan products on the market, as it allows borrowers to choose from 5, 7, 10, 12, 15, 18, 20, 22, 25 and 30-year fixed or variable-rate terms, and also permits cash-out refinances for eligible borrowers. Supplemental and mezzanine financing is also allowed under certain circumstances. Like most other Fannie Mae apartment loans, DUS loans are non-recourse with standard "bad boy" carve-outs.
Fannie Mae Student Housing Loans
Fannie Mae Student Housing Loans are a great way for investors to capitalize on America's quickly-growing student housing market. With loan amounts starting at just $1 million and an assortment of 5 - 30 year fixed and variable-rate loan terms available, Fannie Student Housing Loans are also an incredibly flexible loan product. LTVs go up to 75%, with LTVs up to 70% for cash-out refinances. To qualify for this product at least 40% of a property's units need to be leased to college or university students.
Fannie Mae Seniors Housing Loans
Fannie Mae Seniors Housing loans can help investors finance independent living, assisted living and Alzheimer's / Dementia care facilities. Starting at $5 million, these loans permit LTVs up to 80% and like most other Fannie Mae apartment loans are non-recourse with standard "bad boy" carve-outs.
Fannie Mae ARM 7-6
The Fannie Mae ARM 7-6 starts as a variable-rate loan with a 7-year term but can be converted to a fixed-rate loan anytime between the first day of the second year and the first day of the sixth year of the loan. This makes it incredibly flexible, particularly for borrowers who would like to take advantage of a low starting interest rate. The ARM 7-6 is non-recourse with standard "bad boy" carve-outs and permits LTVs up to 80%.
Fannie Mae Fixed-Rate
Fannie Mae Fixed-Rate Loans are another popular and flexible apartment financing option. These loans offer a variety of fixed-rate terms between 5 and 30 years and allow LTVs up to 80% and DSCRs as low as 1.25x. As with many other types of Fannie Mae multifamily loans, Fixed-Rate Loans permit a variety of property types, including seniors housing, affordable housing properties and manufactured housing communities.
Fannie Mae Green Rewards
Fannie Mae's Green Rewards Program is ideal for apartment investors who want to finance smarter, greener property improvements. For those who take the leap, the program offers lower pricing, up to 5% additional loan proceeds and a free energy and water audit report (which is necessary to get approved for the program). Loans through the Green Rewards Program are non-recourse and are available for most classes of properties, with the notable exclusion of Manufactured Housing Communities.