Fannie Mae’s Multifamily Small Loan program is an important financing option for owners and buyers of properties in underserved markets where housing needs are high and debt funding is often harder to come by.
The agency’s Delegated Underwriting and Servicing (DUS) program finances conventional multifamily assets as well as more affordable housing properties that enable nurses, firefighters, teachers, active-duty military, and other essential workers to live near their places of employment at relatively low rent levels.
These properties are often not eligible for tax credits and other soft government funding. This makes Fannie’s Small Loan program—designed to help fill the gap in overall multifamily financing needs—an attractive option for property owners looking to access flexibility and favorable terms, while furthering Fannie’s mission to boost the country’s housing stock.
Fannie provided $5.1 billion in small loans to multifamily owners and buyers around the country in 2023 and has provided more than $24 billion to the small loan market since 2009, according to the agency. Fannie also recently expanded access to affordable housing finance through its DUS platform.
Here is a closer look at the benefits of Fannie small loans for multifamily owners and buyers who meet the right eligibility requirements.
The Upsides of Fannie Mae Small Loans
Fannie’s Small Loan program options for multifamily rental properties are a key source of liquidity, especially given today’s elevated and unpredictable interest-rate environment.
The agency offers fixed-rate and floating-rate loans for acquisitions and refinancing, with non-recourse execution available with standard carve-outs for “bad acts” such as fraud. Loan sizes range from $1 million to $9 million with qualifying property types including conventional multifamily, workforce housing, and manufactured housing communities (MHC).
Fannie’s Small Loan program places an emphasis on flexibility and offers partial and full interest-only payments, as well as flexible pre-payment options. The program includes loan-to-value (LTV) ratios of up to 80% as well as low debt-service coverage ratio (DSCR) minimums that start at 1.25x.
Given today’s high cost of capital, the appeal of Fannie’s Small Loan program includes the agency’s competitive rates and overall low cost of execution. Repayment terms on Fannie’s loans range from five to 30 years. The agency also offers a streamlined rate-lock option between 30 and 180 days—giving borrowers a greater degree of predictability and control over interest rate risk.
As a source of liquidity for multifamily owners that have amassed equity in their assets, Fannie’s Small loan program offers several other benefits. After 12 months, the loans allow for supplemental financing, also known as a second lien. This enables borrowers to maintain their rate and other favorable terms on their first mortgage, while tapping into additional funding sources.
Cash-out refinancing is also available for eligible borrowers. And for owners who might consider selling their properties, Fannie’s non-recourse loans are assumable for a 1% fee, subject to approval.
How Fannie and Freddie Small Loan Products Differ
While Fannie Mae and Freddie Mac share similar missions, each agency occupies a unique niche in the overall multifamily small loan market. As a result, their offerings often complement each other, to the benefit of borrowers, and provide financing coverage throughout the country.
Fannie Mae’s Small Loan program is frequently more appealing in secondary and tertiary markets, such as Lansing, Minnesota, and Chattanooga, Tennessee, while Freddie Mac’s SBL program is more appealing in larger metropolitan areas, including Chicago, Boston, and Washington, D.C.
Lument recently provided a $7.7 million Fannie loan for the acquisition of a 92-unit garden-style apartment community in Detroit, for example. Greatwater Opportunity Capital, a repeat Lument client, opted for the small loan with a seven-year term, 12 months of interest-only payments, a 30-year amortization, and a low fixed interest rate.
Other deals that Lument has worked on with borrowers outside of gateway markets include a $4.8 million Fannie loan on a 120-unit property in Fayetteville, North Carolina, and a $3.4 million Fannie loan on a 36-unit property in Pembroke Park, Florida.
Fannie and Freddie’s programs have a few other nuanced differences, including the rate-lock and supplemental financing options.
Perhaps most notably, financing for MHCs—a rapidly growing market—is eligible under Fannie’s DUS program but not under Freddie’s Optigo SBL program. By including MHCs in its Small Loan eligibility criteria, Fannie Mae is meeting a clear market need. In 2023, the agency’s MHC loan production jumped 29% year over year to $3.5 billion.
Navigating Fannie Small Loans with Lument
Lument has closed more than $4.8 billion in Fannie Mae Small Loan transactions since 2016. In 2023, Fannie Mae ranked Lument as an overall Top 5 producer for Small Loans and as the second-ranked producer for MHCs.
Thanks to long-standing relationships with agency counterparts, Lument’s originators and underwriters are well equipped to support clients seeking to reap the benefits of Fannie’s Small Loan program.
Borrowers can rely on Lument to help them navigate the intricacies of the program and tap into financing options that best meet their needs. Contact Lument’s SBL team today to find out more.
