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 

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

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

Origination Fees

• 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

Assumability

Loans are fully assumable with lender approval and 1% fee. May also require an additional fee paid to the lender (usually around $3,000) 

Other Considerations

• 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.

In this article:

1. Sample Fannie Mae Terms For Moderate Rehabilitation Loans in 2023
2. Origination Fees
3. Assumability
4. Other Considerations
5. Advantages of Fannie Mae Moderate Rehabilitation Loans
6. Disadvantages of Fannie Mae Moderate Rehabilitation Loans
7. Case Study: Rehabilitating a Nashville Complex
8. Get Financing