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Fannie Mae Moderate Rehabilitation Loans
Fannie Mae Moderate Rehabilitation Loans are intended for the moderate rehabilitation of apartment and multifamily properties. They are non-recourse, have five- to 30-year terms, and permit LTVs up to 80%.
If you're a developer or investor who currently owns (or wants to purchase) a property that needs a moderate amount of renovations, a Fannie Mae Moderate Rehabilitation Loan could be the loan product you've been looking for.
Fannie Mae Moderate Rehabilitation Loans have terms of between five and 30 years, and flexible amortizations of up to 30 years. They even allow supplemental financing through Fannie Mae's Moderate Rehabilitation Supplemental Loan program. Plus, these loans have an LTV allowance up to 80%, are non-recourse, and are fully assumable with lender approval.
Sample Fannie Mae Terms For Moderate Rehabilitation Loans in 2023
Size: $10 million+
Use: Acquisition or refinancing of conventional multifamily properties with at least $10,000 of planned improvements per unit
Terms: 5, 7, 10, and 15-year balloon loans available, 20, 25, and 30-year fully amortizing loans
Amortization: Up to 30 years, interest-only loans are available
Interest Rates: Fixed and adjustable-rate loans available. Fixed-rate loans are based off associated Treasury Bill, while adjustable-rate loans are based off the 30 or 90-day LIBOR rate.
Up to 80% of the lesser of the property's:
Stabilized appraised value
Purchase price (if purchased in the last 12 months) + value add during renovation + 3% closing costs
Minimum DSCR: 1.25x
Rehab Requirements: Property improvements must average at least $10,000/unit
Timing: Borrower will typically receive a commitment 45 to 60 days after initial application; third-party report timing and borrower due diligence submission may speed up or slow down the process
Eligible Borrowers: Borrowers must typically be U.S.-based single asset entities
Prepayment: Options include yield maintenance, defeasance, and declining prepayment premiums
1% of the loan amount for loans $9 million or less
0.8% of the loan amount or $90,000 (whichever is greater) for loans more than $9 million
Origination fees typically continue to decrease as loans become larger
Loans are fully assumable with lender approval and 1% fee. May also require an additional fee paid to the lender (usually around $3,000)
Borrowers must sign a Completion Repair Guaranty covering the entire scope of the required rehabilitation work
If repairs for the project are more than or equal to $20,000/unit, a Rehabilitation Work Evaluation Report is required
Borrowers must submit a Rehabilitation Work Schedule detailing the scope of the planned work, including costs, dates, and allowances for potential cost overruns
Borrowers must also create and submit a budget for the planned work, and place funds into a Rehabilitation Reserve Account
Advantages of Fannie Mae Moderate Rehabilitation Loans
Competitive interest rates
Loans are non-recourse
Lower cost than refinancing
Not subjected to Fannie Mae's "one supplemental loan" rule
Loans are fully assumable (with approval and fees)
Disadvantages of Fannie Mae Moderate Rehabilitation Loans
Requires third-party reports including a Property Condition Assessment, Appraisal, and Phase I Environmental Assessment
$25,000 application fee typically required (includes third-party reports and underwriting costs)
$15,000- $20,000 in legal fees also typically required
Rate locks only available after commitment
Origination fees required
Case Study: Rehabilitating a Nashville Complex
In this scenario, an experienced real estate investor named Samuel was in the process of purchasing a 120-unit apartment complex in Nashville, Tennessee. The building was structurally sound but was in dire need of improvements to attract high-quality tenants. Samuel estimated that he would need to spend about $15,000 per unit on renovations, which amounted to $1.8 million in total.
To cover these costs and finance the acquisition, Samuel decided to apply for a Fannie Mae Moderate Rehabilitation Loan. He planned to purchase the property for $10 million, so he would need a loan of about $11.8 million to cover both the acquisition and the renovation costs.
Samuel's loan request was within the limits set by Fannie Mae's Moderate Rehabilitation Loan program. He was able to provide a thorough work schedule and budget for the renovations, and he also had a good track record of successfully completing similar projects in the past.
Once the third-party reports were completed and Samuel paid the necessary fees, Fannie Mae approved his loan. They offered him a $11.8 million loan with a 30-year term, and the loan was fully amortizing. The interest rate was fixed, and the loan was non-recourse, limiting Samuel's personal liability.
With the loan secured, Samuel was able to complete the renovations and transform the building into a desirable place to live. The updates allowed him to attract a new tenant base, and the improved property was able to generate significantly more rental income than before.
By using a Fannie Mae Moderate Rehabilitation Loan, Samuel was able to not only acquire the property but also fund necessary improvements, resulting in a successful investment and enhancing the appeal of his property portfolio.
This is a fictional case study provided for illustrative purposes.