Fannie Mae Flexible Choice Bridge Loans
Fannie Mae's Flexible Choice Bridge Loans offer ARM 7-6 and Structured ARM loans tailored to meet the needs of affordable housing properties.
- Fannie Mae Adjustable-Rate Financing for Affordable Multifamily Properties
- Sample Fannie Mae Terms for Flexible Choice Bridge Loans 2024
- Recourse
- Prepayment Options
- Occupancy Requirements
- Commercial Space Limits
- Fixed-Rate Conversion
- Advantages
- Disadvantages
- Case Study: Buying an Affordable Property in Boise
- Get Financing
Fannie Mae Adjustable-Rate Financing for Affordable Multifamily Properties
Smart multifamily investors know that affordable properties often 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.)
To learn more, check out our official Fannie Mae Flexible Choice Bridge Product Sheet or keep reading below for an in-depth explanation of the Flexible Choice Bridge financing program.
Sample Fannie Mae Terms for Flexible Choice Bridge Loans 2024
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 30-day SOFR plus a margin
Interest Rate Cap: Determined at rate lock, interest rates cannot increase or decrease more than 1.00% per month
Maximum LTV: 80%
Minimum DSCR:
ARM 7-6: 1.00x (at max. lifetime interest rate)
Structured ARM: 1.00x (using a variable underwriting rate)
No minimum or maximum loan amount (for ARM 7-6 loans)
Competitive interest rates
Loans are non-recourse
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
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
Disadvantages
Case Study: Buying an Affordable Property in Boise
Alex, a savvy multifamily investor based in Boise, Idaho, had identified an opportunity to acquire an affordable multifamily property. Recognizing that affordable properties often have distinct financing needs compared to market-rate developments, Alex looked for a loan program tailored to his requirements.
Given the property's unique demands, Alex found the Fannie Mae Flexible Choice Bridge Loan program an excellent fit. This program was explicitly designed for affordable properties like his and had adjustable interest rates, which appealed to Alex, considering the current low-interest-rate environment.
The property Alex intended to purchase was worth $6 million. With the Flexible Choice Bridge loan offering a maximum LTV allowance of 80%, Alex was able to secure a loan amount of $4.8 million to finance his acquisition. The loan program's amortization of up to 30 years also suited Alex, providing him with manageable, lower monthly repayments.
The loan's interest rate was based on the 30-day SOFR plus a margin, and the rate cap ensured the interest rates wouldn't increase or decrease more than 1.00% per month. This safeguard provided Alex with a level of protection against sudden, significant interest rate fluctuations.
One aspect of the loan program that stood out to Alex was the flexible prepayment options. He was also attracted by the possibility of converting the adjustable-rate loan to a fixed-rate loan down the line, giving him future financing flexibility.
With the Fannie Mae Flexible Choice Bridge Loan, Alex was able to meet his financing needs for the affordable multifamily property, making the acquisition process smoother and more convenient.
This is a fictional case study provided for illustrative purposes.