Both Fannie Mae and Freddie Mac operate in multifamily markets and provide services for the construction, purchases, and substantial rehabilitation loans for multifamily properties. These organizations offer inexpensive, long term amortizations, with fixed rate options for apartments and senior housing, as well as affordable and market rate unit mixes.
Multifamily owners and investors need to work through approved DUS Lenders to get approved for financing. LSG Lending Advisors has relationships with lenders that specialize in numerous Fannie Fae and Freddie Mac programs. Fannie Mae gives lenders have the autonomy and flexibility to underwrite and close loans. The DUS Lenders must follow the guidelines for each program.
Long Term Amortization & Non-Recourse Loans
Many banks, savings and loans, hard money, and insurance companies lend loans that are recourse that requires personal guarantees. This can be very risky for borrowers that purchase or have properties in their portfolios that underperform and can not cover the debt service. The lender is able to go after the owner’s personal assets to recover losses. Fannie Mae and Freddie Mac loans are non-recourse which means in the event of default the borrower is not personally liable for further compensation if the debt is not repaid.
The loan requirements are a little more stringent and place a strong emphasis on the property condition, and the market strength of the property location. The loan to values can go up to 80% for purchases, and up to 75% for refinances. This is more than banks and other lending, but less than HUD/FHA financing programs. The interest rates are 1% or lower than most other financing options, and allow longer amortizations. Many multifamily apartments that have Fannie Mae or Freddie Mac financing have 3,5,7, or 10-year fixed rate terms that are amortized over 25 to 30 years to reduce the payment amounts. This allows borrowers and investors to build up equity and either sell the property or refinance at the balloon payment and take out equity to acquire other properties or pay back the partners their initial investments and profits.
Additional Fannie Mae and Freddie Mac Loan Requirements
Fannie Mae and Freddie Mac loans usually require the borrower to have loan provisions with maintenance schedules and capital needs requirements to keep the asset competitive and in good condition. DUS approved lenders have the systems and technologies that allow the execution of these loans to be very quick. A lot of the processes, procedures, and management of 3rd party reports are streamlined. These loans take anywhere from 30 to 90 days from engagement to execution depending on the complexity of the transaction.
When choosing your fixed rate term of 3, 5, 7, 10 or in some cases longer, you want to consider the yield maintenance pre-payment penalties that many of these loan programs carry. Yield maintenance is a prepayment fee that borrowers pay lenders to reimburse them for the loss of interest resulting from the prepayment of a loan. This provision permits the lender to obtain the same yield as if the borrower had made all scheduled mortgage payments until loan maturity.