Navigating the world of multifamily real estate financing can be challenging, especially for new investors. Among the many options available, loans from Fannie Mae and Freddie Mac stand out as powerful tools designed to support housing markets and empower investors. These government-sponsored enterprises offer competitive rates, flexible terms, and a streamlined process that makes them a go-to choice for financing multifamily properties. In this article, we’ll explore the key advantages of Fannie Mae and Freddie Mac loans, eligibility requirements, qualifying property types, and the steps to securing one of these loans for your next investment.

What are the main advantages of obtaining a Fannie Mae or Freddie Mac loan?

Fannie and Freddie are programs aimed at achieving the Federal Housing Finance Agency’s main goal which is to maintain enterprise support of the multifamily affordable housing market without crowding out private capital. They do this by offering lower rates to qualified operators on properties that can provide stability to the housing market. The main advantages of this type of debt includes:

Cheaper Rates:

Fannie Mae and Freddie Mac loans offer interest rates and loan terms are often more favorable (typically around 1% lower) compared to traditional commercial financing, due to their government-sponsored status and focus on supporting housing markets. These agencies also offer reduced rates for properties that meet specific affordability, geographical or sustainability criteria. Fannie Mae Multifamily

Predictable Payments:

The amortization schedule for Fannie Mae and Freddie Mac loans typically involves equal monthly payments over the loan term, with each payment comprising both principal and interest. Most loans follow a 30-year amortization schedule, though terms can vary, with options for shorter periods like 20 or 25 years. These predictable schedules ensure consistent payments, which help multifamily investors manage cash flow effectively. Fannie Mae Multifamily

Flexible Loan Terms:

A variety of loan terms are available, allowing borrowers to select options that best fit their investment strategies. Fannie Mae and Freddie Mac loans offering 3, 5, 7, or 9-year terms—especially the commonly chosen 5- and 7-year options—provide investors with flexibility to align financing with their investment strategy. Shorter terms often come with lower interest rates, reducing the cost of borrowing. Additionally, these terms allow investors to refinance or sell the property within a defined period without being locked into a long-term commitment, making it easier to adapt to market conditions or reposition assets for maximum returns.
Fannie Mae Multifamily

What qualifies someone for these loans?

Creditworthiness:

Borrowers must be credit-worthy single-asset U.S. borrowers with U.S. ownership. In the context of Fannie Mae and Freddie Mac loans, “single-asset U.S. borrowers” typically refers to borrowers who own the property being financed through a single-asset entity, such as a Single Purpose Entity (SPE) or Special Purpose Vehicle (SPV). These are legal entities, often structured as LLCs, that hold only the specific property tied to the loan and have no other assets or operations.

This structure provides two key advantages. First, is risk isolation. The lender’s risk is limited to the specific property, reducing potential complications from other unrelated liabilities or assets owned by the borrower. Second, is the ease of underwriting. It simplifies the loan process, as the lender can focus on the financial performance and risks of the single property, rather than analyzing a portfolio of assets. Fannie Mae Multifamily

Financial Stability:

Demonstrating financial stability and the ability to meet debt obligations is essential.Fannie Mae and Freddie Mac typically require a Debt Service Coverage Ratio (DSCR) of at least 1.25x for conventional multifamily loans. This means the property’s net operating income (NOI) must be at least 25% higher than the annual debt service (principal and interest payments). In some cases, loans for affordable housing or properties with government subsidies may have slightly lower DSCR requirements (e.g., 1.15x), while riskier properties or those in secondary/tertiary markets may require higher DSCRs (e.g., 1.30x or more). Maintaining this ratio ensures the property generates sufficient income to cover debt obligations and provides a cushion for unexpected expenses or fluctuations in cash flow.

What properties qualify for these types of loans?

There are two main stipulations for properties to qualify for Fannie/Freddie debt. First, a property must contain at least five dwelling units in order to qualify. Previous regulations stipulated that all of these units needed to be located on a single parcel. However, the Federal Housing Finance Agency now permits separate parcels located in proximity to qualify. Second stipulation has to do with property types. Fannie/Freddie eligible properties include existing, stabilized conventional properties, multifamily affordable housing properties, seniors housing properties, student housing properties, and manufactured housing communities. This broad selection allows for a wide variety of eligible properties but the multifamily property must be rent stabilized. Fannie Mae Multifamily

A “rent stabilized” property means it is fully operational and generating consistent rental income, with occupancy levels typically at or above 90% for a sustained period (e.g., 90 days or more). This indicates the property has a steady cash flow, making it less risky for lenders and a safer investment for you. Lenders like Fannie Mae and Freddie Mac often prefer stabilized properties because they demonstrate reliable income and lower vacancy risk and are indications of a good operator.

How does an investor go about obtaining these loans?

First you will need to engage in the loan application process finding an approved Fannie Mae or Freddie Mac multifamily lender. Both Fannie Mae and Freddie Mac work with networks of approved lenders. Lenders such as Walker & Dunlop and BWE are two fannie mae multifamily lenders that have done a lot of business here in Tennessee. Investors should contact these lenders to discuss financing options. To become an approved lender for Fannie Mae or Freddie Mac, a financial institution must meet stringent criteria to ensure they can reliably originate, underwrite, and service loans in line with agency guidelines. Both agencies maintain a list of approved lenders, ensuring borrowers work with trusted institutions familiar with their specific loan products and requirements.

Next you will begin your application process during which the lender will guide you through all of the underwriting and due diligence. This process is quite extensive and includes a wide variety of checks and balances. They will look at the property’s performance and stability, including rent roll and net operating income (NOI) as well as its physical condition. The lender will also look at the borrower’s credit history, experience and financial strength to make sure that the borrow can cover unexpected expenses or vacancies that may arise. They will also look at the market the property is in. to determine if market demand, location and local comps make the property a sound investment. By thoroughly evaluating these factors, lenders ensure the loan is low-risk and aligns with Fannie Mae or Freddie Mac standards.

Conclusion

Fannie Mae and Freddie Mac loans offer multifamily investors a unique combination of flexibility, affordability, and stability, making them an attractive option for financing rental properties. With competitive pricing, diverse loan terms, and clear qualification guidelines, these loans cater to a wide range of investment strategies. To help you get started, our free Multifamily Lending Guide includes up-to-date information on local and reputable Fannie Mae and Freddie Mac lenders, making it easier to find the financing that fits your needs. Additionally, we offer a free consultation to help you navigate your financing options and take the next steps toward growing your portfolio. Download the guide today and schedule your consultation to unlock the potential of multifamily real estate with confidence.