Fannie Mae

One option for financing your multifamily investment is the use of Fannie Mae and Freddie Mac Loans. This execution is ideal for investors purchasing or refinancing their multifamily property - Fannie Mae and Freddie Mac both offer competitive fixed and floating rate financing, while simultaneously requiring the borrower to be experienced in multifamily, with strong financials and adequate collateral. The two agencies have flexible loan programs and can accommodate financing on a variety of multi-family assets including market-rate apartment communities, student housing, affordable housing, senior housing, and manufactured housing.
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Details of Fannie Mae Loans:

Fannie Mae loans have standard 5, 7, 10, and 12-year loan term options and their various loan product channels (i.e., DUS Small Loan, DUS Conventional Loan, DUS Large Loan) can accommodate transactions small and large. Depending on the execution type, maximum LTV can reach 80% for acquisitions and 75% for cash-out refinances with highly competitive pricing, non-recourse financing, and the added ability to streamline rate-lock to take advantage of favorable interest rate environments. 

DUS Lenders:

What are DUS Lenders? 

DUS stands for Delegated Underwriting and Servicing. This refers to a specific set of 24 lenders that are pre-approved by Fannie Mae to underwrite a loan to their standards. DUS Lenders are required to abide by Fannie Mae multifamily underwriting parameters as indicated in the Fannie Mae Underwriting Guide. Additionally, DUS Lenders must maintain certain standards when servicing a loan during the loan term. Basic requirements of servicing include ongoing debt service coverage and occupancy monitoring.This program sits on an overall principal of risk-sharing, offering delegation to lenders and an additional offering - a single-asset MBS offering for the investor community. 

Everything there is to know about the Fannie Mae DUS Loan Program 

The Fannie Mae DUS Loan Program is the largest source of capital within the multifamily market in the United States. This program allows a group of 24 pre-approved lenders to underwrite, close, and sell multifamily loans guaranteed by Fannie Mae. In terms of risk-sharing, DUS lenders typically take one-third of the risk in the loan, ensuring that they have personal stake in the process and are motivated to analyze the credit risk of the borrower to ensure that they are suitable enough for a DUS Loan.  

Fannie Mae Multifamily loans are a first-lien permanent mortgage loan, suitable for the acquisition and/or refinancing of multifamily properties. 

For commercial real estate investors, the Fannie Mae DUS Loan Program may be a great option for acquiring lower costing financing for affordable housing, assisted living, mobile home parks, health care facilities, apartments, and student housing.

Fannie Mae requires the following property characteristics to be eligible for financing. 

To be eligible, a property must: 

  • Contains at least 5 dwelling units
  • Have suitable bathroom and cooking facilities located within each unit
  • Be located in 1 of the 50 states of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, or Guam
  • Be located on a publicly dedicated, all-weather road, or is accessible by a satisfactory easement from this type of road
  • Consist of either a single parcel or multiple parcels 
  • Any commercial space is physically part of, and connected to, the multifamily space, or a stand-alone building that is on the same tax parcel;
  • Have adequate water and sewer service, which may be delivered by a public utility or, where commercially acceptable for the market area, by a private system or utility
  • Offer a suitable level of utility service (e.g., electrical, natural gas, refuse removal, etc.) for the market area
  • Either comply with all applicable statutes, rules, regulations, and housing and building codes, or is being appropriately remediated
  • Not contain any Modular Housing; and
  • have access to police and emergency services.

Benefits of Fannie Mae DUS Loans

Fannie Mae loans have standard 5-, 7-, 10-, 12-, and 15-year balloon and 20-, 25-, or 30-year fully amortizing loan term options and their various loan products (DUS Small Loan, DUS Conventional Loan, DUS Large Loan) can accommodate transactions small and large. Fannie Mae has both fixed rate and adjustable rate mortgages available.  Depending on the execution type, maximum LTV can reach 80% for acquisitions and 75% for cash-out refinances with highly competitive pricing, non-recourse financing, and the added ability to streamline rate-lock to take advantage of favorable interest rate environments.

Additionally, other advantages of Fannie Mae Loans include:

1. The possibility to have up to 80% of tenants within multifamily properties as either students or military tenants.

2. Flexible loan terms - these loans provide borrowers with flexible terms that fit their wide range of needs. Generally, this includes amortization options for up to 30 years. 

3. LTV requirements: Unlike other types of real estate that offer a much stricter loan to value ratio requirement, Fannie Mae Loans offer up to 80% maximum LTV. 

4. Flexibility in Property Type: Fannie Mae Multifamily Loans can be used for properties including senior housing developments, manufactured housing communities, and other types of properties. 

What commercial properties are Fannie Mae DUS Loans best for?

Fannie Mae Multifamily Loans are suitable for several property types. Eligible properties include: existing, stabilized conventional properties, multifamily affordable housing properties, seniors housing properties, student housing properties, and manufactured housing communities. Eligible multifamily properties must have at least five units. 

What are the terms of a DUS Loan?

Loan Amount Min $3,000,000
Loan Term 5-, 7-, 10-, 12-, and 15-year balloon and 20-, 25-, or 30-year fully amortizing
Amortization 25 or 30 years, based on property condition; Interest-only financing is available
Loan to Value Maximum Maximum 80% of appraised value, or if property has been purchased within the past 12 months, 80% of
lower of: a) purchase price, plus value added renovation, plus 3% closing costs, or b) appraisal
Coverage Minimum 1.25x Minimum
Borrower Domestic single asset borrowing entity is required
Interest Rate Risk-based "Tier" pricing, varying with LTV and DSCR ratios
Prepayment Terms Yield Maintenance with no lockout, Defeasance, or fixed, step-down prepayment schedules
Third Party Reports MAI Appraisal, Physical Needs Assessment, and Environmental Phase I Assessment are required, plus
Seismic Report may be required for properties in Seismic Zones 3 and 4
Reserves Tax and insurance escrows are required; Funded Repair and Replacement escrow is required, based on
engineer's Physical Needs Assessment; For loans of less than 65% of value with no deferred maintenance,
funding of repair and replacement reserve can be waived at lender's discretion
Application Fee $15,000; covers 3rd party reports and processing/underwriting costs
Origination Fee Fannie Mae requires minimum origination fee equal to 1% of loan amount for loans of $9 million or less;
Minimum fee for loans over $9 million through $20 million is the greater of 0.8 percent or $90,000; Fees
decrease further is increasing loan size; Origination fee can be charged "outside" of the interest rate as
a separate fee, or it can be built into the rate
Timing 45-60 days from application to commitment; dependent on 3rd party report timing and borrower's
submission of due diligence
Rate Lock Typically, lock occurs after commitment is issued; Streamlined Rate Lock option is available, allowing rate
lock within 3-4 weeks of application
Assumability Loan is assumable, subject to lender approval of proposed replacement borrower; Fees include 1%
assumption fee, part of which is paid to Fannie Mae, and a $3,000 processing fee to cover lender's
underwriting expenses

What are the products and services offered through DUS Lenders?

Student housing properties

The Fannie Mae DUS Student Housing Loan Program offers non-recourse, fixed and adjustable-rate financing for the acquisition or refinance of stabilized Student Housing properties. Within these properties, more than 40% of the units must be leased to undergraduate or graduate students.

Senior housing properties

Fannie Mae DUS loans are one of the popular loan programs for large residential properties such as senior housing. These loans are often used to finance four types of housing: 

  1. Independent living provides limited programs of assistance for seniors, stretching beyond transportation and food
  2. Assisted living, providing non-medical care and assistance with daily living for residents
  3. Memory care, provides services to residents with Alzheimer’s disease or dementia
  4. Skilled nursing facilities,providing a higher level of nursing or ambulatory care (often for short term rehabilitation). 

Moderate rehab mortgage loans

Moderate Rehabilitation mortgage loans are secured by a property that will undergo at least $8,000 of rehabilitation work per unit. 

(Chapter 9) Small mortgage loans

The Fannie Mae Multifamily Small Loan Program offers financing between $1 Million and $5 Million. 

Mezzanine Financing and Preferred Equity

Mezzanine Financing and Preferred equity are financing tools that serve similar gap financing purposes. Both of these tools are a blend of debt and equity, providing the investor with higher leverage at a lower cost than common equity.

Fannie Mae Conventional DUS

Fannie Mae conventional loans are mortgages for market rate apartment communities with a total loan balance greater than $6.5MM. These loans are for the acquisition or refinance of multifamily projects nationwide.

Things you should know about Fannie Mae DUS Lender Partners

There are currently 24 Fannie Mae DUS lenders in operation, with top lenders including Walker & Dunlop, CBRE, Berkadia, Wells-Fargo, Greystone, Newmark, JLL, Capital One, Keybank, and Arbor. These partners take roughly one third of the risk in the loan in order to ensure that they have responsibility in the transaction. 

Partners take on life-of-loan servicing, meaning there is no other master or servicer involved in the process and the post-closing period runs seamlessly.

Everything you need to know about DUS MBS

The Fannie Mae Multifamily DUS MBS is a single-asset MBS with a single loan as support for the collateral. It is not in an overall securitization - this means that the investor and borrower are tied from the initial stages of underwriting, closing, and issuing of the security until the end.

 This process includes three key stakeholders: the borrower, the lender, and Fannie Mae. Fannie Mae strictly guarantees loans on multifamily properties with a minimum of five units. This product allows for customized loan structures, a risk-sharing model, and loan terms of varying prepayment periods and lengths.

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