Fannie Mae Affordable Housing Preservation Loans
Fannie Mae's affordable housing preservation financing is specifically targeted at multifamily properties using government programs, from HAP contracts to LIHTCs.
Fannie Mae Financing for Subsidized Housing Developments
Fannie Mae is eager to preserve the availability of subsidized rental housing for low-income tenants — and the Affordable Housing Preservation Loan is designed to help encourage investors to do just that.
Fannie Mae Affordable Housing Preservation Loans are specifically intended for properties with Section 8 Housing Assistance Program (HAP) contracts, properties with expiring Low Income Housing Tax Program (LIHTC) credits, and properties using other similar government subsidy programs. These loans have an LTV allowance of up to 80% and a minimum 1.20x DSCR limit, are non-recourse, and are fully assumable with lender approval.
Sample Fannie Mae Terms for Affordable Housing Preservation Loans in 2024
Size: Varies
Terms: 5-30 years, must end at the same time as the original mortgage loan
Amortization: Up to 35 years
Interest Rates: Fixed and variable-rate loan options available
Maximum LTV: Up to 80%, 75% for cash-out refinances
Minimum DSCR: As low as 1.20x for fixed-rate properties
Recourse: Loans are non-recourse with standard “bad boy” carve-outs
Prepayment Penalty: Yield maintenance and declining prepayment premium options available
Third-Party Subordinate Debt: Allowed under certain circumstances: hard debt must be issued by a non-profit, public, or quasi-public entity and combined DSCR cannot go below 1.05x, while soft third-party subordinate debt payments cannot exceed 75% of property cash flow "after payment of senior liens and property operating expenses"
Eligible Properties:
Eligible properties include:
Expiring Low Income Housing Tax Credit (LIHTC) deals
Properties refinancing existing tax-exempt bonds
Rental Assistance Demonstration (RAD) eligible properties
HUD Section 8 Housing Assistance Program (HAP) Contract properties
Loans insured under Sections 202 or 236 of the National Housing Act
Properties with existing Rural Housing Service (RHS)/Rural Development (RD) Section 515 and RD Section 538 Loans
Having at least 20% of the project's units rented to families earning less than or equal to 50% of the Area Median Income (AMI), or:
Having at least 40% of the project's units rented to families earning less than or equal to 60% of the Area Median Income (AMI), or:
Section 8/Project-Based Housing Assistance Payments for at least 20% of the project's units
Competitive interest rates
Loans are non-recourse
30-180 day rate locks (streamlined rate locks also available)
Supplemental financing is allowed
Third-party subordinate debt allowed under certain circumstances
Requires third-party reports including a Property Condition Assessment/Physical Needs Assessment, an Appraisal, and a Phase I Environmental Assessment (may not be required in certain circumstances)
Typically requires a $15,000 processing fee (which includes major third-party reports and lender due diligence)
Typically requires replacement reserves of $250/unit per year
2% rate lock fee (refunded at closing)
Plus, properties must meet low-income restrictions by:
Assumability: Loans are typically assumable with lender approval
Advantages
Disadvantages
Case Study: Expiring LIHTC in Phoenix
Take, for instance, the case of Michael, a real estate investor in Phoenix, Arizona who owns a property with an expiring Low Income Housing Tax Credit (LIHTC) deal. Understanding the importance of preserving affordable housing in his community, he sought a loan that would allow him to refinance the property and continue to provide affordable rental units.
With its attractive terms and alignment with his goals, the Fannie Mae Affordable Housing Preservation Loan emerged as an excellent option. This loan is specifically designed for properties like Michael's, under Section 8 Housing Assistance Program (HAP) contracts, with expiring LIHTC, and those benefiting from similar government subsidy programs.
Michael's property was valued at $10 million, with most units rented to families earning less than or equal to 60% of the Area Median Income (AMI), thereby satisfying the program's low-income restrictions. As this Fannie Mae loan program provides a maximum LTV of up to 80%, Michael was able to secure a loan of up to $8 million.
The loan term was flexible, ranging between 5 to 30 years, and it was required to end at the same time as his original mortgage loan. Moreover, the loan offered an extended amortization period of up to 35 years, reducing Michael's monthly payments and easing the financial burden.
One of the key features that attracted Michael to this program was the non-recourse nature of the loan. This aspect ensured his personal assets were safe in case of a loan default. Additionally, the loan was fully assumable with lender approval, making it a more appealing option if he ever decided to sell his property in the future.
By opting for the Fannie Mae Affordable Housing Preservation Loan, Michael was able to maintain his property's affordable status while ensuring the property remained financially viable. This example underscores the importance of tailored financial solutions like the Fannie Mae loan programs in preserving and promoting affordable housing.
This is a fictional case study provided for illustrative purposes.