Fannie Mae Supplemental Loans
Fannie Mae's supplemental loans offer additional funding for properties already financed with another Fannie Mae loan.
If you're an investor who currently owns a property financed with a Fannie Mae multifamily loan, but you want more funding, a Fannie Mae Supplemental Loan could be a fantastic option. Starting at a minimum of $500,000, these loans offer a maximum LTV of up to 75% and fixed-rate terms of between five and 30 years.
Just like other Fannie Mae multifamily loans, Fannie Mae Supplemental Loans offer competitive interest rates and are mainly non-recourse. Plus, non-recourse Supplemental Loans are fully assumable (with lender approval and a 1% fee.)
Typically, Fannie Mae borrowers are permitted to take out only one Supplemental Loan; however, if the loan is assumed by another party, a second Supplemental Loan is usually permitted.
Sample Fannie Mae Terms for Multifamily Supplemental Loans in 2023
Size: $500,000 minimum
Terms: Five- to 30-year fixed-rate loan terms available, may or may not be coterminous with original Fannie Mae mortgage
Amortization: Up to 30 years
Maximum LTV: 75% (may vary based on how proceeds are used)
Minimum DSCR: 1.30x (may be more under certain conditions)
Recourse: Most loans are non-recourse with standard “bad boy” carve-outs
Prepayment Options: Yield maintenance or defeasance
Timing: Loans typically close between 45 and 60 days after initial application
Conventional multifamily properties, Multifamily Affordable Housing (MAH), seniors housing properties, and student housing developments with existing Fannie Mae loans
Bond Credit Enhancement transactions are permitted with Fannie Mae approval
Competitive interest rates
Allows borrower to access equity in their property without refinancing
Streamlined documentation/underwriting process
Most loans are non-recourse
30- to 180-day rate locks available after commitment (streamlined rate locks also available)
Loans are fully assumable with lender approval and a 1% fee
Requires third-party reports including an Appraisal, a Property Condition Assessment, and a Phase I Environmental Update. A Seismic Report may also be required if property is located in Seismic Zones 3 or 4.
Typically requires $10,000 in lender fees (including third-party reports, though this may vary by lender)
Often requires between $8,000 and $12,000 in legal fees
Requires a $20,500 application deposit
Requires a 1% approval fee (for non-recourse loans)
Not available for Fannie Mae loans with remaining loan terms of less than 5 years
2% deposit typically required at rate lock (refunded after Fannie Mae purchases the loan, usually around 30 days after closing)
Case Study: Financing a Student Housing Expansion
In Madison, Wisconsin, a seasoned real estate investor named Jake owned a well-maintained 45-unit multifamily apartment complex. Situated near a local university, the property was popular with students and consistently had high occupancy rates. Jake initially financed his investment with a Fannie Mae Multifamily Loan.
As the years passed, Jake successfully managed the property, accumulating substantial equity. The current market value of his property was approximately $6 million. Jake saw an opportunity for growth in developing an adjacent lot he owned into an extension of the existing property, thereby increasing the unit count and potential rental income.
However, this development required substantial funding. Instead of seeking an entirely new loan or refinancing his existing loan, Jake turned to a Fannie Mae Supplemental Loan. This product was an ideal solution as it allowed Jake to tap into his property's equity without altering the terms of his initial loan.
Jake applied for a Fannie Mae Supplemental Loan of $2 million. This, combined with the existing Fannie Mae loan, landed well below the maximum LTV of 75% for this type of loan.
Thanks to Jake's solid credit history, the property's consistent cash flow, and his compelling expansion plan, his application received approval. The supplemental loan provided him with the necessary capital to execute his development project. Upon completion, the expanded property increased its appeal and revenue potential, showcasing the effectiveness and utility of the Fannie Mae Supplemental Loan.
This is a fictional case study provided for illustrative purposes.