Written by Fernando Martin| September 28, 2018
A The Federal National Mortgage Association (FNMA or �Fannie Mae�) mortgage is an adjustable or fixed-rate loan product available for various types of multifamily properties. The underwriting and application process is standardized and performed by Delegated Underwriting and Services (DUS) lenders. Through it�s two major programs (Small Loan Program and DUS Program), Fannie offers multifamily mortgages starting at $750,000. Like CMBS mortgages, these loans are pooled, securitized, and sold to investors, but typically serviced by the originator.
| Recourse | Usually non-recourse except for �bad boy� carve-outs, with some exceptions |
| Interest-Only Period | Available on some adjustable-rate products |
| Prepayment Penalty | Yield Maintenance or Declining (with additional spread or fee) |
| Loan Assumption | Available, with pre-approval and assumption fee |
| Rate Lock Available | Yes, through Streamlined Rate Lock |
| Loan Servicer | Originator, or may be transferred to a third party |
| Secondary financing | Yes, 12+ months after closing, through FNMA Supplemental Loan Program |
| Insurance & Tax Reserve | Required unless low-leverage |
| Capital Reserves | Required for most properties, including older properties or properties with deferred maintenance |
| Eligible Properties |
Market-Rate (Conventional) Apartments Affordable Housing Senior Housing Student Housing Manufactured Housing Cooperative Housing (in Boston, Chicago, Los Angeles, New York, Washington D.C.) |
| Loan Amount | $750,000 � $3,000,000 (nationwide) or $5,000,000 (Baltimore, Boston, Chicago, Los Angeles, New York, Sacramento, San Diego, San Francisco, San Jose, Seattle, Washington D.C.) |
| Loan Terms | 5-30 year, fixed-rate OR 7 year, adjustable rate (7/6 Program) |
| Amortization | Up to 30 years |
| Minimum DSCR | Depends on loan tier |
| Interest-Only | Part- or full-term available on fixed-rate products |
| Prepayment Penalty | Yield maintenance or Declining (for additional spread or fee) on fixed-rate terms; 1% fee (after 1 year lock-out) on adjustable terms |
| Rate Lock | Early Rate Lock available; 30-180 days |
| Eligible Properties |
Market-Rate (Conventional) Apartments Affordable Housing Senior Housing Student Housing Manufactured Housing Cooperative Housing (in Boston, Chicago, Los Angeles, New York, Washington D.C.) |
| Loan Amount | $3,000,000+ |
| Loan Terms | 5-30 year, fixed-rate OR 7 year, adjustable rate (7/6 Program) |
| Amortization | Up to 30 years |
| Minimum DSCR | Depends on property type |
| Interest-Only | Part- or full-term on fixed-rate products |
| Prepayment Penalty | Yield maintenance or Declining (for additional spread or fee) on fixed-rate terms; 1% fee (after 1 year lock-out) on adjustable terms |
| Rate Lock | Early Rate Lock available; 30-180 days |
| Property Type | Market rate apartments, affordable housing, senior housing, student housing, cooperative housing, and manufactured housing communities |
| Location | Primary or secondary MSAs (populations of 200,000+) with a few exceptions for tertiary markets |
| Occupancy | At least 90% for 90 days prior to funding for completed properties; 75% physical occupancy for newly constructed or renovated properties. |
| Units | 5+ for multifamily, 50+ pad sites for manufactured housing |
| Loan amount | $750,000 minimum, although most lenders start at $1 million |
| Financials | Strong, increasing NOI (excluding unusual expenses) |
| Leases | 12-month leases; parental guarantees for student housing |
| Experience | Required |
| Net worth | 1.0x loan amount requested, unless waiver granted |
| Liquidity | 6-12 months debt service (after any required cash injections) |
| Credit | No recent bankruptcies, foreclosures, short sales, etc. |
| Citizenship | $750,000 minimum, although most lenders start at $1 million |
| Financials | Credit-worth single-asset US Borrower with all US ownership; indirect foreign ownership okay with proper structuring of entity and parent |
| Maximum LTV/LTC | 80% for purchases, 75% for refinances (dependent on cash flow) |
| Term length | 5-30 year, fixed-rate OR 7 year, adjustable rate |
| Maximum amortization | 30 years (dependent on property location and age) |
| Minimum DSCR | 1.25x+ (dependent on location and leverage) |
| Third party reports required | Appraisal, Phase I Environmental Assessment, Property Condition Assessment, Seismic report (in certain areas such as California); others may be required based on property, condition, and location |
Fannie Mae loans are priced based on the corresponding treasury and a spread, which takes into account the loan amount, term, LTV, and property location. Pricing considerations the borrower should be aware of are the following:
Mortgages that conform to the Fannie Mae underwriting standards are funded by the originating lender, then pooled together, securitized (i.e. converted into mortgage-backed security bonds), and sold to investors. A multifamily mortgage-backed security (MBS) may be backed by fixed-rate mortgage loans or adjustable-rate mortgage loans, but not both within the same offering. When the multifamily MBS is issued, Fannie Mae guarantees timely payment of principal and interest to the MBS certificate holders. Fannie also issues Discount Mortgage-Backed Securities (DMBS), which are non-interest bearing securities having terms of one year or less and purchased at a discount. Multifamily MBS may be placed into Megas, REMICs, or other mortgage-related securities.
Typically serviced by the DUS originator/underwriter, but may be transferred to third parties.
| Adjustable Rate Products |
ARM 7-6 Credit Facility Structured ARM |
| Fixed Rate Products |
Bulk Delivery Choice Refinance Credit Facility DUS Mortgage Small Loan Negotiated Pools Supplemental Loans |
| Customized Affordable Loan Products |
Affordable Housing Preservation Funded Forward Rate Lock (9% LIHTC) Unfunded Forward Rate Lock (9% LIHTC) Green Preservation Plus Reduced Occupancy Affordable Rehab (ROAR) MBS as Tax-Exempt Bond Collateral (Fixed Rate) MBS as Tax-Exempt Bond Collateral (Variable Rate) Rural Development Rental Housing FHA Risk Sharing Execution Tax-Exempt Bond Credit Enhancement |
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