For smaller multifamily property investors and owners, securing financing for their projects can be a difficult process. In 2017, Fannie Mae introduced their Small Loan program, designed to help property owners refinance or acquire properties. We’ve highlighted two recent updates to the loan program that borrowers will love.
Fannie Mae Maximum Loan Amount
Fannie Mae recently made two significant changes within the program in August 2023. One is the increase in financing from $6 million to $9 million. In addition, the investor now can live within 200 miles rather than 100 miles. Both updates give smaller apartment project owners even more opportunities for financing.
What is the Fannie Mae Small Loan Program?
Fannie Mae Small Loan program is designed for multifamily apartment projects that range in size of five to fifty apartment units. The Fannie Mae Small Loan program is an excellent opportunity for smaller project owners to have access to flexible loan terms, faster loan processing times, and a highly competitive interest rate.
Loan Terms for Fannie Mae's Small Loan Program
Loan terms available through Fannie Mae's Small Loan program vary depending on the property's location, quality, and other factors. However, typical loan terms generally have fixed rate terms that are amortized for up to 30 years. There is a balloon payment due once the fixed rate period ends. The program also offers interest-only payment options for the loan's first one to three years. With these flexible terms, property owners can make the most of their investment property by stabilizing their cash flow.
Program Guidelines for a Fannie Mae Small Loan
Other program guidelines include a maximum loan-to-value ratio of 80% and a debt service coverage ratio of 1.25x. Property owners must also provide a detailed property income statement, rent rolls, and the last three years' tax returns. Additionally, defaulting on a loan guaranteed by Fannie Mae means a borrower's personal assets will not be seized. In the event of nonpayment, the lender will repossess the property but will not go after the borrowers' personal belongings.
Benefits of a Small Loan Program & Balloon Mortgages
There are benefits to the small loan program when using a balloon payment. A balloon payment is a final payment in a large sum due at the mortgage's end. Additionally, if the monthly payments are insufficient, a mortgage with a balloon payment requires a large payment amount at the end.
The benefits of a balloon mortgage are that it can give borrowers lower interest payments and terms than other more traditional and long-term loans but does exclude HUD loan products. Lenders see shorter-term loans as less risky, which is reflected in a lower interest rate.
Risks With Fannie Mae's Small Business Loan
As with any loan program, there are risks every potential borrower needs to be aware of. For one, the Fannie Mae Small Business Loan Program has more restrictive borrower qualifications, potentially tighter underwriting guidelines, and a longer loan process with more extensive documentation requirements than other loan options. Additionally, as with any loan program, there is always the risk of default and the potential for financial loss.
Start Fannie Mae’s Small Loan Program Today
Kickstart your multifamily apartment project with Fannie Mae’s Small Loan Program. LSG Lending Advisors can help you navigate the loan application process and get you the best financing. Check out the rates and let’s get you started on multifamily apartment investing.