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.
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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 2023
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
Plus, properties must meet low-income restrictions by:
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
Assumability: Loans are typically assumable with lender approval
Advantages:
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
Disadvantages:
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)