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Fannie Mae Student Housing Loans
Fannie Mae Student Housing Loans are designed for properties with an 80% or higher concentration of undergraduate students and are non-recourse, beginning at $1 million with permitted LTVs of up to 75%.
Colleges and universities provide an essential service by educating the next generation of American leaders, workers, and innovators — but to get that education, their students need proper housing. If you're an investor interested in providing housing for undergraduate or graduate students, a Fannie Mae Student Housing Loan could be the ideal solution.
Just like most other Fannie Mae multifamily loan options, Fannie Mae student housing loans offer competitive interest rates, are mainly non-recourse, and are fully assumable (with lender approval).
Despite the many benefits of Fannie Mae Student Housing Loans, getting one can be somewhat complex — which is why you'll want an experienced partner to help guide you through the entire application and approval process. By doing so, you can streamline the lending experience for all parties involved, saving significant time and money.
Sample Fannie Mae Terms for Student Housing Loans in 2023
Size: $1 million+ (no set maximum)
Terms: Five- to 30-year fixed and variable loan terms available, interest-only terms may also be available in certain situations
Use: Acquisitions or refinances
Amortization: Up to 30 years
Maximum LTV: 75%, 70% for cash-out refinances (when available)
Minimum DSCR: 1.30x for fixed-rate loans, 1.05x for variable-rate loans (subject to fixed-rate test)
Prepayment Options: Yield maintenance or 1% prepayment penalty, whichever is larger
Eligible Borrowers: Must typically be a Single Purpose Entity (SPE), though some lenders allow general or limited partnerships, limited liability companies, corporations, trusts, or individuals.
Timing: Loans typically close 45 to 60 days after initial application
Requirements for Student Housing Properties
- 40% or more units must be leased to undergraduate or graduate students
- Must have at least 80% of the units leased to graduate or undergraduate students
- Need to be located near a college/university campus with at least 10,000 students enrolled, and at least 50% of those students enrolled full-time
- Have at least 80% of leases with 12-month terms (guaranteed by parents), or leased by student tenants with the financial capability to pay their lease
- Needs to be within 2 miles of campus or a college/university transportation line
- Must be operated for one school year and be in its second year of operations
- Can be located on university-owned land (provided key principal has at least five years of experience and "operates at least one other Dedicated Student Housing Property" on college or university owned land)
Fannie Mae Student Housing Loans: Pros and Cons
Very competitive interest rates
Up to 75% LTV
Most loans are non-recourse
Interest-only loans are permitted in some situations
Supplemental loans allowed after 12 months
Loan underwriting may be based on a per bedroom rate, leading to a higher loan amount than for a comparable (non-student housing) multifamily property
30-90 day rate locks available after commitment, with 6 month extended rate locks also available before closing (1 year-rate locks available in some cases)
Loans are fully assumable (with lender approval)
Requires third-party reports, including an Appraisal, Phase I Environmental Assessment, and Physical Needs Assessment. May also include reports such as Flood Inspections, Property Surveys and Site Inspections.
Typical lender closing costs are about $12,500 (including third-party reports)
Also typically requires about $7,500- $12,500 in legal costs
Replacement reserves of $250/unit per year are required
Student Housing Properties require at least 40% student occupancy (may be up to 80% undergraduate-only occupancy for some lenders), and often also require a minimum overall tenant occupancy of 90%
Owner/operators must be U.S. citizens, with liquid assets that can cover at least 6 months of mortgage payments after closing
Owner/operators must have a proven track record in the student housing industry
Student tenants must typically sign 12-month leases guaranteed by parents, or must be currently employed and have good credit
Typically requires a 2% rate lock deposit paid at rate lock (refunded after Fannie Mae purchases the loan, usually about 30 days post-closing)
Case Study: Buying Student Housing in Austin
Meet Sarah, a real estate investor interested in providing housing for undergraduate and graduate students in Austin, Texas. She found a five-year-old student housing property consisting of two buildings with a total of 30 units, located within 2 miles of a university with more than 15,000 enrolled students.
However, Sarah faced a challenge in finding a financing solution that specifically catered to student housing properties. Traditional financing options didn't address the unique requirements of student housing, such as the necessity for leases guaranteed by parents or the 12-month lease terms.
That's when she discovered the Fannie Mae Student Housing Loan, an ideal solution for her investment goals. With competitive interest rates and a non-recourse feature, this loan product was designed to address the unique needs of student housing properties.
The property's purchase price was $4.8 million, and Sarah managed to secure a Fannie Mae Student Housing Loan at 70% LTV, which amounted to a loan of $3.4 million. With a 10-year term and a fixed interest rate, Sarah was able to benefit from stability and predictability in her payments.
Thanks to the Fannie Mae Student Housing Loan, Sarah successfully invested in the multifamily property, ensuring a comfortable and secure living environment for students pursuing higher education in Austin. This financing solution allowed her to contribute to the local community and support the educational aspirations of the next generation of American leaders, workers, and innovators.
This is a fictional case study provided for illustrative purposes.