Fannie Mae Adjustable-Rate Financing for Affordable Multifamily Properties  

Fannie Mae Insured Loan Options for Affordable Apartment Buildings and Multifamily Developments

Smart multifamily investors know that affordable properties sometimes have different financing needs than market-rate developments-- and fortunately, Fannie Mae agrees. To help affordable multifamily properties thrive, Fannie Mae's Flexible Bridge Choice program has developed versions of the Fannie Mae ARM 7-6 and the Fannie Mae Structured ARM loan specifically designed to meet the needs of affordable properties. Like their traditional Fannie Mae counterparts, these loans have a maximum LTV allowance of 80%, amortizations of up to 30 years, and easy-to-understand fixed-rate conversion options. Plus, like many other Fannie Mae multifamily loans, these loans are non-recourse and fully assumable (with lender approval and a 1% fee.) However, unlike Fannie Mae's traditional ARM 7-6 and Structured ARM loans, Flexible Choice Bridge loans have no minimum or maximum loan amount (though non-syndication structured ARMs must be at least $5 million.)



Sample Fannie Mae Terms For Flexible Choice Bridge Loans

Size:  No minimum or maximum loan amount (however, non-syndication structured ARMs must be $5 million or more) 

Terms:  7 years (10 year option for Structured ARMs) 

Amortization:  Up to 30 years (interest only options available for eligible borrowers) 

Interest Rate: Based on the 1-month LIBOR plus a margin 

Interest Rate Cap: Determined at rate lock, interest rates cannot increase or decrease more than 1.00% per month 

Maximum LTV80%

Minimum DSCR 

  • ARM 7-6: 1.00x (at max. lifetime interest rate) 
  • Structured ARM: 1.00x (using a variable underwriting rate) 

Recourse:  Most loans are non-recourse with standard “bad boy” carve-outs for fraud and other bad acts, loans less than $3 million may be recourse in some areas  

Prepayment Options:  12 month lockout (6 months with prior approval), then a 1% prepayment premium during the adjustable-rate period, though this is waived for the last three months. Structured ARMs allow a 12 month lockout, followed by a declining prepayment premium, starting at 4% in the second year and going down to 1% per year by the fifth year (where it will stay until the last three months of the loan.) 

Occupancy Requirements: 85% physical occupancy, 70% economic occupancy, 90% physical occupancy for loans under $3 million 

Commercial Space Limits: Commercial space must be no more than 35% of the net rentable area and must produce no more than 20% of the property's income

Fixed-Rate Conversion: The ARM 7-6 can be converted to a fixed-rate loan on any rate change date between the first day of the second year of the loan and the first day of the sixth year of the loan, without any prepayment penalties. Structured ARMs can be converted to a fixed-rate loan on any rate change date between the first day of the second year of the loan and the first day of the third month before the end of the loan. The amount of the loan cannot increase, but borrowers can apply for supplemental financing. 

Advantages:

  • No minimum or maximum loan amount (for ARM 7-6 loans) 
  • Competitive interest rates 
  • Loans are non-recourse 

Disadvantages:

  • Requires third-party reports including a property appraisal, property condition assessment, and a Phase I Environmental Assessment   
  • Requires replacement reserves (minimum of $250/unit per year) 
  • $12,500 application deposit and $3,000 processing fee required 
  • 1% origination fee also required 
  • Does not allow for supplemental financing before conversion to a fixed-rate loan
  • Only 30 day rate lock commitments are available