Fannie Mae and Freddie Mac (agencies) and The United States Department of Housing and Urban Development (HUD) provide great options for financing multifamily apartment properties.
Here, we outline the top multifamily financing options available to you and explore considerations to aid your decision.
Looking for personalized guidance? Schedule a free phone consultation with our team today.
Top Multifamily Financing Options
Fannie Mae, Freddie Mac, and HUD loans are available throughout the United States. These are the best loans to review when considering your multifamily financing options, depending on your need:
- Fannie Mae and Freddie Mac are agencies that offer excellent financing terms for affordable housing, mixed-use, market-rate, green, and manufactured housing.
- HUD multifamily financing programs offer the best rates and terms, but it can take longer for your transaction to process than it would with an agency.
- Banks offer options for new multifamily apartment owners. Fannie Mae, Freddie Mac, and HUD have higher standards for ownership than banks; these programs are for borrowers with prior multifamily ownership and management experience.
Top Considerations When Financing a Multifamily Property
The right loan for you will depend on your personal circumstances and goals. Here are a few considerations to bear in mind when weighing up your options.
Rates and Terms
Agency loans have interest rates that are approximately half a percent lower than banks, and HUD offers rates three-quarters of a point (or more) less than banks:
- HUD loans offer the most attractive rates and terms in the multifamily apartment market. They offer permanent loan terms of 40 years for new construction projects and up to 35 years or 75% of the remaining economic life for purchases and refinances. HUD only offers fixed-rate options that are fully amortized. A fixed-rate, fully amortized, non-recourse loan with balloon payments is an excellent product for borrowers that are looking to keep this asset in their portfolio for the long term.
- Agency loans offer low rate, long-term financing with high leverage. Fannie Mae and Freddie Mac offer interest-only options and loan terms for up to 30 years.
Both agency and HUD loans have programs that allow cash out, to be used for capital improvements, other investment properties, or for equity distribution to investment partners.
New Apartment Purchases
If you are looking to purchase a multifamily apartment complex, agency loans are a better option as HUD takes longer to process transactions. You can also look into options with banks if you are unable to secure an agency loan for financing a multifamily property.
Fannie Mae, Freddie Mac, and HUD all offer non-recourse loans, which means the borrower is not held personally liable in the event of a default. The lender will take over the property but will not go after the individuals’ personal assets for non-payment.
Options for Market-Rate Projects
Many investors believe that HUD loans (and sometimes agency loans) are only available for affordable housing or Section 8 projects. However, agencies and the HUD are in fact great financing sources for market-rate projects with no affordable components.
Secure a HUD or Agency Loan with LSG Lending Advisors
To obtain an agency loan, the borrower must work with a direct lender. LSG Lending Advisors has relationships with direct lenders that will provide an analysis and term sheet for you. Contact our trusted multifamily financing team today!