8 Reasons Why You Should Consider an Agency Loan
Agency loans are multifamily loans backed by government-sponsored enterprises such as Fannie Mae or Freddie Mac. Here's what makes them stand out.
Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get QuotesIf you're looking for a multifamily real estate loan, you may wish to consider an agency loan. Agency loans are loans backed by government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac.
Here are eight reasons to consider an agency loan for your commercial real estate loan:
1. Lower Interest Rates
Agency loans typically have lower interest rates than other types of loans, such as conventional financing. This stems from the fact that agency loans are backed by GSEs, meaning that lenders themselves take on far less risk than they would with a conventional mortgage.
2. Long Amortization
Agency loans typically offer amortization periods of up to 30 years. This generally keeps your monthly payments relatively low, increasing your cash flows. However, be aware that at a standard, 10-year (or shorter) term, you may need to pay a balloon payment as the mortgage matures..
3. Lower Down Payments
Another benefit of agency loans is that they often require a lower down payment than other types of loans. This can be helpful if you don't have a lot of cash on hand, or if you wish to retain capital to invest in upgrades or expansions of a property.
4. Flexible Underwriting Standards
Agency loans also have flexible underwriting standards, which means that you may be able to qualify for a loan even if you don't have perfect credit. This can be helpful if you have some blemishes on your credit report.
5. Fixed- or Adjustable-Rate Loans
Agency loans are available as both fixed-rate and adjustable-rate loans. This means you can choose the type of loan that best suits your needs. If you opt for a fixed-rate agency loan, the interest rate will remain the same for the life of the mortgage — even if rates begin to rise astronomically. This provides peace of mind and stability, as you know your monthly payments will remain the same through the loan's term.
6. Government-Backed Loans
Another advantage of agency loans is that they are backed by the government. This means that the GSEs will make payments on the loan if you default. This can give you peace of mind knowing that your loan is backed by the government.
7. Access to More Capital
Agency loans can also give you access to more capital than other types of loans. This can be helpful if you need to make repairs or improvements to the property, or even take cash out when refinancing.
8. Streamlined Refinancing Process
If you need to refinance your loan, the process is typically much simpler with an agency loan than with other types of loans. This can save you time, hassle, and money — and provide you with some of the best loan terms out there.
Other Loan Options
Of course, an agency loan might not be right for you. There are many other types of loans available, and the right one for your needs will depend on your individual circumstances. Some other options include:
- Conventional Loans: Conventional permanent loans are not backed by a government agency. They typically have stricter credit requirements than agency loans, but they may also have lower interest rates. If you have good credit, a conventional loan may be a good option for you. Learn more ->
- Bridge Loans: Bridge loans are short-term in nature, maturing after 12 to 24 months in most cases. They are relatively expensive, but their value comes from how quickly they can close. Bridge financing can be ideal for a multifamily's lease-up period. Learn more ->
- CMBS Loans: Also known as conduit loans, CMBS loans offer higher leverage and lower fixed interest rates than many multifamily financing options. Once a loan is issued, it is pooled together with other loans, securitized, and sold to investors. Learn more ->
Related Questions
What are the benefits of an agency loan?
An agency loan offers several benefits, including lower down payments, government-backed loans, and more.
Lower down payments are one of the main benefits of an agency loan. This can be helpful if you don't have a lot of cash on hand, or if you wish to retain capital to invest in upgrades or expansions of a property. Source
Another advantage of agency loans is that they are backed by the government. This means that the GSEs will make payments on the loan if you default. This can give you peace of mind knowing that your loan is backed by the government. Source
What types of agency loans are available?
There are several types of agency loans available, including Fannie Mae, Freddie Mac, and FHA loans. Fannie Mae and Freddie Mac loans are typically used for multifamily and commercial properties, while FHA loans are typically used for single-family homes. Fannie Mae and Freddie Mac loans offer competitive interest rates and flexible terms, while FHA loans offer low down payments and more lenient credit requirements. Learn more about agency loans here.
What are the requirements for an agency loan?
The requirements for an agency loan vary depending on the loan product, but generally borrowers need to have good credit (typically a 660-680 minimum FICO score), and a net worth of at least 100% of the loan amount, not including retirement accounts. They should also have liquidity of at least 10% of the total loan amount. Some loans, like the Freddie Mac Small Balance Loan (SBL), provide substantially better terms to properties in larger MSAs. Most agency loan products permit up to 80% LTV, with DSCRs as low as 1.25x.
What are the advantages of an agency loan over other types of financing?
An agency loan has several advantages over other types of financing. One advantage is that they often require a lower down payment than other types of loans, which can be helpful if you don't have a lot of cash on hand. Another advantage is that agency loans can give you access to more capital than other types of loans, which can be helpful if you need to make repairs or improvements to the property, or even take cash out when refinancing.
For more information, please see 8 Reasons Why You Should Consider an Agency Loan.
What are the risks associated with an agency loan?
The main risk associated with an agency loan is that the GSEs will not make payments on the loan if you default. This means that the lender is taking on more risk than they would with a conventional mortgage. Additionally, agency loans may have higher closing costs than other types of loans, such as conventional financing.
How long does it take to get an agency loan?
The time it takes to get an agency loan depends on the lender and the complexity of the loan. Generally, it can take anywhere from a few weeks to a few months. Agency loans typically offer amortization periods of up to 30 years, and have flexible underwriting standards, which can help speed up the process. At the end of the loan term, you may need to pay a balloon payment as the mortgage matures.
What are the costs associated with an agency loan?
The costs associated with an agency loan depend on the lender and the loan terms. Generally, agency loans have lower interest rates than other types of loans, such as conventional financing. This is because agency loans are backed by GSEs, meaning that lenders themselves take on far less risk than they would with a conventional mortgage. Additionally, agency loans often require a lower down payment than other types of loans, which can be helpful if you don't have a lot of cash on hand. Other costs associated with agency loans may include origination fees, closing costs, and other fees associated with the loan. For more information, please consult with a commercial real estate financing advisor.
What are the best practices for applying for an agency loan?
The best practices for applying for an agency loan include having a good credit score, having a lower down payment, and understanding the flexible underwriting standards.
Having a good credit score is important when applying for an agency loan. This is because lenders will use your credit score to determine your eligibility for the loan.
Having a lower down payment is also beneficial when applying for an agency loan. This is because agency loans often require a lower down payment than other types of loans.
It is also important to understand the flexible underwriting standards of agency loans. This means that you may be able to qualify for a loan even if you don't have perfect credit.
For more information, please visit this article about 8 Reasons Why You Should Consider an Agency Loan.