Pros and Cons of Applying for Multifamily Fannie Mae Loans

“The Loan We All Own.” As investors, we know that you might hear this slogan from Fannie Mae at times, especially when you are making an investment loan. 

Fannie Mae loans are one of the biggest sources of capital within the U.S. real estate industry. You can apply for lower-cost financing for your investments through this loan.

For many, this type of financing is a great way to invest, but before you start, you should know what it is, how it works, and the pros and cons of applying for this type of loan.

Understanding Fannie Mae Loans

Fannie Mae is a catchphrase for the Federal National Mortgage Association (FNMA). This is a government-sponsored enterprise (GSE) that Congress set up to help saving and loan companies, banks, and mortgage companies that lend money to buy homes get access to funds quickly and at fair rates.

In the past, people sometimes had to pay back their home loans as quickly as five years to avoid default. This came with an additional big payment coming at the end of the term. But now that Fannie Mae loans are available in the real estate market, lenders can feel safe because the loan has a set rate and lasts for a long time to make housing more affordable.

Fannie Mae Loans cover two main types of loans: Single-Family and Multifamily. In this article, we will concentrate on Multifamily Fannie Mae Loans.

What are Multifamily Fannie Mae Loans

"Multifamily housing" is a general word referring to rented properties with two or more units. Multifamily Fannie Mae Loans include conventional, cooperative, manufactured housing communities,  rent-restricted, senior housing, small balance loans, and student housing.

As part of the Delegated Underwriting and Servicing (DUS®) scheme, they offer Multifamily Fannie Mae Loans. This is a novel approach to using private funds to pay for multifamily housing. By securitizing loans, it helps keep money flowing into the multifamily market.

Miami is a great place to invest in multifamily housing, so this type of loan could be helpful for investors like you. However, you must know first the pros and cons of Miami’s Multifamily Fannie Mae Loans before you apply.

1. Pros: More Property Investment Opportunities

Multifamily Fannie Mae Loans are a big part of housing market growth because they provide access to mortgages at affordable rates, making it easier for you to start your rental property business. With its flexible down payments, you can buy a property with as little as 3% of the price of the house as a down payment. This can help you free up your funds for other expenses in your rental home business, such as repairs and improvements.

Plus, Multifamily Fannie Mae Loans offers training materials and advice that will equip you with the knowledge and tools you need to acquire a rental property successfully.

Cons: Restrictions on Certain Types of Properties

Multifamily Fannie Mae loans have strict requirements on the kinds of properties that might be eligible for financing. Restrictions apply to investment properties with four units or more. 

Before filing for multifamily Fannie Mae loans, make sure you know what kinds of properties are eligible so there won’t be any problems during your approval process.

2. Pros: Reasonable Interest Rates

Multifamily Fannie Mae loans provide competitive rates, which may cut your monthly payments and save you money in the long run. Affordability and security in the long term are can be yours when you apply for this type of loan.

Cons: Need for Mortgage Insurance

Mortgage insurance is required by Multifamily Fannie Mae Loans and most other lenders to reduce the risk of default. If you want to know what extra financial protections come with a Fannie Mae loan, you need to know about its mortgage insurance requirements.

3. Pros: Adaptable Loan Conditions

Multifamily Fannie Mae loans provide a variety of customizable payment plans to suit investors varying financial profiles. With loan terms running from 10 or 15 years to 30 years, you can choose a payback plan that works with your budget plan and other financial goals.

Adjustable-Rate Mortgages (ARMs)

This gives you the freedom to lower starting payments while giving you a set interest rate for a certain amount of time. After that, the rate could change depending on the market.

Fixed-Rate Mortgages

This makes sure that your interest rate stays the same for the whole loan time so that you can plan your monthly payments with confidence.

Cons: Other Possible Charges and Payments

Applying for Multifamily Fannie Mae loans involves some fees and expenditures, which could affect the affordability of your mortgage.

• Appraisal Fee: $300 - $500

• Closing Costs: 2% – 5% of the loan amount

• Loan Origination Fee: 0.5% – 1% of the loan amount

• Mortgage Insurance Premium: 0.55% to 2.25% of the annual loan amount

• Prepaid Interest - Depending on your loan and interest rate

4. Pros: Lowering the Ecological Footprint of Multifamily Properties

When you apply for Multifamily Fannie Mae Loans, you may take advantage of the Green Rewards Program. This eco-friendly financing option helps you maximize the affordable housing offers of these mortgage loans.

To qualify for this multifamily financing program, you may have to make some improvements in your rental property that lower your energy and/or water consumption by at least 30% within 12 months.

Cons: More Stringent Criteria for Eligibility

These tougher rules are in place to make sure that you can afford to pay back your multifamily loan quickly. Apart from the minimum loan amount of $750,000 and being an experienced investor, you must also be qualified with the following affordable rental housing loan eligibilities:

• Higher Credit Score

• Lower Debt-to-Income Ratio

• Proof of Income

• Stable Employment History

5. Pros: Still Recognize Landlord’s Right to Choose Quality Tenants and Right to Eviction

The Federal Housing Finance Agency (FHFA) announced this July 12 that starting February 2025, rental property businesses covered by the Fannie Mae Loan must follow a set of multifamily tenant protection guidelines.

Although this may sound more supportive of tenants than landlords, you must take note that you still hold more rights as a landlord, and this includes choosing quality tenants. It depends on your decision as a landlord if you would like to accept applicants who are qualified for a housing voucher or Social Security Disability Insurance. Moreover, you also have the privilege to evict a tenant without reason.

Cons: Written Notice and Grace Period Requirements

Under Fannie Mae's new Multifamily Tenant Protection, you are required to provide your tenants with written notice and a grace period for a rent increase, lease expiration, and rent payments.

Before implementing a rent increase and lease expiration in your rental property, you must first provide a 30-day notice to your tenants. Meanwhile, if your tenants fail to pay their rental payment, you must give them a 5-day grace period.

Leverage Fannie Mae Loans for Miami Real Estate Success!

Multifamily Fannie Mae Loans are great options for investors and landlords. You just have to be aware of the rules in mortgage payments and the requirements that you need to meet to qualify for them. You also need to keep yourself updated about the latest developments in this secondary mortgage market so that you can reap the benefits that they offer.

Thankfully, with a professional property management company like Pristine Property Management LLC as your partner, you can maximize the advantages of Fannie Mae's mortgage-backed securities and use them to boost your business.

Feel free to send us a message, and let's discuss how we can boost your Miami multifamily property business!