Commercial Magazine

Finding the Right Apartment Loan

When it comes to Freddie Mac and Fannie Mae, subtle differences matter

By Daniel Sobin

The past year has been a record period for U.S. multifamily housing performance. According to real estate analytics company Yardi Matrix, the national average asking rent in June 2022 increased $19 to $1,706, a new all-time high. Rent growth was slowing but had jumped by an average of 13.7% year over year at that time.

In addition, the average asking rent for single- family built-to-rent units rose to a record high of $2,071, Yardi reported. Occupancy rates across the country reached 97.6% in the first quarter of the year, according to a RealPage analysis. With rising rents and low occupancy rates, the rental housing market continues to be one of the hottest segments in the commercial real estate industry.

Prudent mortgage originators need to analyze all GSE programs to decide which option is right for each client based on which program can offer the best terms for a particular investment deal.

Many mortgage originators know that their clients are looking to move into these sizzling investment spaces. It is vitally important that brokers and borrowers understand how to best finance these acquisitions. There are many different options for multifamily loans in today’s real estate market. Two of the most popular for multifamily investors are the government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae.

Government created

The Federal National Mortgage Association, commonly known as Fannie Mae, is an agency that was developed in 1938 by the U.S. government to provide reliable and steady funding for housing. The Federal Home Loan Mortgage Corp., commonly known as Freddie Mac, was chartered in 1979 and is very similar to Fannie Mae.
Both have similar charters, mandates and regulatory structures. Both entities purchase, guarantee and securitize loans for a variety of single-family and multifamily homes. And each are mainstays in the secondary mortgage market.
Offering both fixed- and variable-rate options for apartments, student housing, senior housing and affordable housing, Freddie Mac has always been one of the most aggressive financing sources for larger multifamily transactions. The GSEs have provided hundreds of billions of dollars in multifamily financing.
Freddie Mac’s small-balance multifamily loan program has originated more than $33 billion in volume since 2009. Fannie Mae offers a similar program and has originated more than $24 billion in small-balance apartment loans since 2009.

Freddie Mac options

For eligible borrowers, Freddie Mac offers some of the best terms and rates. Its programs have unique features for multifamily purchases and refinances. The loans have a minimum size of $1 million.
The simple loan application process doesn’t require tax returns for the borrower or the property. Loans typically close in 45 to 60 days and the program has some of the lowest financing costs for assets with five or more units. These loans are nonrecourse, which means that the borrower is not required to personally guarantee repayment.
Prepayment penalties are flexible and range from yield maintenance fees to soft stepdowns. Maybe the best feature that Freddie Mac offers is a free rate lock for up to 35 days after the application date. If rates change during the underwriting period, the rate locked in at application is automatically applied. Additionally, Freddie offers five-, seven- and 10-year fixed-rate loans that amortize over 30 years. Borrowers may even be eligible for several years of interest-only payments.
Freddie Mac multifamily loan programs offer a combination of benefits and features not available anywhere else. Whether a borrower’s objective is to buy additional real estate, get a lower rate on an existing loan or take cash out of an existing property, Freddie Mac has the strength and expertise to get them to the closing table faster and more efficiently than many other lending options.

Fannie Mae role

Fannie Mae is a top capital source for multifamily financing. The agency backs mortgages for various types of multifamily properties, ranging from conventional and affordable housing to senior apartment complexes, student housing and manufactured home communities, to name a few.
Their loan programs offer many benefits not available through traditional bank programs. For example, Fannie Mae offers long-term fixed rates of up to 30 years, high loan-to-value ratios of up to 80% and nonrecourse provisions. The agency allows for commercial tenants as long as no more than 35% of a property’s net rentable area is leased to these tenants. It also offers flexible prepayment penalties and interest-only options. Loans are assumable and allow for secondary financing.
While Fannie Mae multifamily loans are a good option for investors, it’s important to be aware of the rules. For instance, Fannie Mae underwriting guidelines state that only apartment buildings in primary or secondary metropolitan statistical areas are eligible, with some exceptions for tertiary markets. With the exception of newly built or renovated properties, assets must be stabilized with a 90% occupancy rate for at least 90 days.
Standard multifamily properties must have at least five units and manufactured housing communities must have at least 50 pad sites. Borrowers must have strong financial standing, with net worth equal to the loan amount and liquidity equal to nine to 12 months of debt service. Typically, a borrower must have a FICO score of at least 680 with no recent delinquencies.

Making a choice

Prudent mortgage originators need to analyze all GSE programs to decide which option is right for each client based on which program can offer the best terms for a particular investment deal. Each agency offers some great benefits, but there are certain differences that must be pointed out.
One of the main differences is where they buy their loans. Fannie Mae mainly buys loans from larger commercial banks. Freddie Mac focuses on credit unions, small banks, and savings and loan institutions.
Other differences include early rate locks for loan applications. Freddie Mac’s small-balance program offers a rate lock at loan application if the application, supporting documentation and third-party reports are submitted within 35 days of the term sheet execution. On the other hand, Fannie Mae will only lock interest rates at loan approval. In a volatile market, the Freddie Mac rate lock offers a great benefit to investors.
When it comes to the length of the loan, Fannie Mae offers a wide variety of options going all the way up to a fully amortizing 30-year term loan. Freddie Mac only fixes rates for up to 10 years. Borrowers looking for a long-term fixed-rate loan are better off choosing Fannie rather than Freddie.
There is no rule as to which agency offers lower interest rates, and sometimes their rates are close to the same. But there are differences between the two agencies with regard to pricing. Fannie Mae tends to have the lowest rates in small to medium-sized markets. Freddie Mac tends to offer lower rates in the largest markets. Investors need to fully understand how and where the GSEs are pricing their loans to make the wisest financing decision.
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Fannie Mae and Freddie Mac are closely tied to one another. They each offer some of the best and lowest-priced multifamily loans you can find. But there are minor and subtle differences that commercial mortgage brokers should know about to give their clients the best advice. These differences also are important for lenders to understand when they look at how the GSEs are pricing their loans. ●


  • Daniel Sobin

    Daniel Sobin is vice president of originations at Select Commercial Funding LLC, a nationwide commercial mortgage brokerage company. A passionate commercial real estate expert, Sobin is a proud member of the Inter-Capital Group, a nationwide alliance of commercial mortgage professionals. Reach Sobin at (516) 596-8297 or visit

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