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3 min read

Fannie Mae Credit Enhancement of Variable-Rate Tax-Exempt Bonds (Index Bonds)

Fannie Mae bond financing offers LTV allowances of up to 85%, amortizations of up to 35 years, and extremely competitive interest rates.

In this article:
  1. Fannie Mae Bond Financing Solutions for Multifamily Borrowers
  2. Sample Fannie Mae Terms for Credit Enhanced Variable-Rate Tax-Exempt Bonds in 2025
  3. Get Financing
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Fannie Mae Bond Financing Solutions for Multifamily Borrowers

Investors and developers searching for an alternative method to fund the construction, refinancing, rehabilitation, or acquisition of affordable properties don't need to look further than Fannie Mae's Credit Enhancement of Variable-Rate Tax-Exempt Bonds program. Eligible properties for this program include Multifamily Affordable Housing (MAH) developments, "80/20" deals (properties with at least 20% affordable units), and stabilized 4% Low-Income Housing Tax Credit (LIHTC) properties. Plus, the program offers LTV allowances of up to 85%, amortizations of up to 35 years, and extremely competitive interest rates. 

Sample Fannie Mae Terms for Credit Enhanced Variable-Rate Tax-Exempt Bonds in 2025

Size:  Varies, typically $3 million

Terms:  10-30 years 

Amortization:  Up to 35 years 

Interest Rates: 

  • Fixed, variable-rate, and interest-only loan options available

  • Fixed rate bonds sometimes require re-marketing/rate reset after 10 years

  • An 18-year minimum term and initial reset period is mandatory for properties with 20% or more Low-Income Housing Tax Credit (LIHTC) units

  • Variable-rate bonds typically have the option to convert to fixed-rate bonds, for a minimum 10-year period, or, if less than 10 years, for the remainder of the credit enhancement

  • Interest Rate Caps: For variable-rate bonds, borrowers must purchase an interest rate cap with a term of at least 5 years. Borrowers must purchase a new cap when the cap expires. 

    Maximum LTV: 

    • Variable-rate:

    • 85% (without value of tax-exempt financing)

    • 80% (including value of tax-exempt financing)

    • Fixed-rate:

      • 85% (without value of tax-exempt financing)

      • 80% (including value of tax-exempt financing)

      • 90% (for projects with 90% or more Low-Income Housing Tax Credits (LIHTCs)

    • Minimum DSCR:  1.00x, as calculated via a variable underwriting rate 

      Prepayment Penalty: Flexible options available 

      Recourse: Loans are non-recourse with standard “bad boy” carve-outs 

      Eligible Properties: 

      • Multifamily Affordable Housing (MAH) Developments

      • 4% LIHTC Properties

      • 80-20s (deals in which 20% of the property is set aside for low income residents)

      • Bond refunding and new issues allowed

      • 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"

        Assumability:  Fully assumable with lender approval and a 1% fee

        Advantages:

        • Competitive interest rates

        • Up to 85% LTV allowance

        • Up to 35 year amortization

        • 30 day rate locks allowed

        • Loans are non-recourse

        • Supplemental financing is allowed (up to two supplemental mortgages allowed, with a third allowed under certain circumstances if the loan is assumed by a new borrower)

        • No put feature (the bond holder cannot demand that the issuer pay back the bond in advance)

        • Forward commitments for new construction available

        • Disadvantages:

          • No limits on rate changes

          • Borrowers must purchase interest rate cap from an approved provider

          • Requires third-party reports including Phase I Environmental Assessment, Property Condition assessment, and Appraisal

          • Issuer and trustee fees required

          In this article:
          1. Fannie Mae Bond Financing Solutions for Multifamily Borrowers
          2. Sample Fannie Mae Terms for Credit Enhanced Variable-Rate Tax-Exempt Bonds in 2025
          3. Get Financing

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This website is owned by a company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

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