Fannie Mae Rural Development Guaranteed Rural Rental Housing Program
Fannie Mae's Rural Rental Housing Program offers some astonishingly competitive terms, with LTVs as high as 97% in select cases.
Fannie Mae Loans for Rural Multifamily Properties
Building, buying, or renovating a rural multifamily property isn't for everyone-- but for investors who are serious about rural development, the Fannie Mae Rural Development Guaranteed Rural Rental Housing Program offers some pretty incredible terms.
The program, which is offered by the United States Department of Agriculture (UDSA) Office of Rural Development's (RD's) Section 538 program, offers fixed-rate loans with terms between 25 and 40 years. Plus, the program offers LTV allowances of up to 90% for for-profit organizations, and up to 97% for non-profit organizations.
Sample Terms for Fannie Mae Loans for Rural Multifamily Properties in 2024
Size: Varies
Terms: 25 to 40 years
Amortization: 25-40 years (both fully amortizing loans and balloon loans allowed)
Interest Rate: Fixed-rate only
Maximum LTV: 90%, up to 97% for non-profits with Fannie Mae approval
Minimum DSCR: 1.15x
Recourse: Loans are recourse, except for the portion of the loan covered by the USDA Office of Rural Development's (RD's) 90% guaranty
Eligible Properties:
Lenders must be approved by the USDA RD and Fannie Mae
Property transactions with rent subsidies allowed
For properties undergoing rehabilitation, a minimum of $6,500 per unit is required
Rent must be restricted to 30% of the area median income (AMI), adjusted for family size
Fast underwriting/approval process
Flexible amortizations
Competitive interest rates
90% USDA guaranty
Loans are partially recourse
Only available in rural areas
Advantages
Disadvantages
Case Study: Financing a Rural Kentucky Purchase
About 10 miles outside of Lexington, Kentucky, a local real estate investor named Benjamin saw an opportunity. He identified a unique, 36-unit multifamily property, nestled in the tranquility of the rural landscape. The property, established 20 years ago, was comprised of three buildings, each home to 12 units.
Benjamin recognized that this asset could provide much-needed quality housing to the local population, and thus, he decided to purchase it. The market value for this property was around $3.6 million, making it a significant investment.
Discovering the Fannie Mae Rural Development Guaranteed Rural Rental Housing Program, Benjamin realized he had found the financing solution he needed. With this program's generous LTV allowances — up to 90% — he was eligible to secure a loan of $3.24 million, thus substantially reducing his immediate financial outlay.
The fixed-rate loan aspect offered financial predictability, essential for Benjamin's long-term strategy. Additionally, the lengthy terms of 25 to 40 years allowed him flexibility in repayment planning. Given the financial performance of his asset with a robust DSCR of 1.15x, meeting the program's minimum DSCR requirement was straightforward.
While the recourse aspect of the loan brought certain responsibilities, the 90% USDA guaranty offered a layer of protection and peace of mind. His property, located in an eligible rural area, and the willingness to restrict rents to 30% of the area median income (AMI), made Benjamin's investment compatible with the program's requirements.
Navigating the program's requirements, Benjamin was successful in securing the loan for his rural multifamily property. The competitive interest rates and the fast underwriting process made the entire experience even more rewarding. Today, his property provides affordable, comfortable housing to numerous families, contributing to the vibrancy of the Lexington rural community.
This is a fictional case study provided for illustrative purposes.