When it comes to securing financing for a multifamily property, there are a number of different options available to borrowers. Two of the most popular options are HUD multifamily loans and Fannie Mae multifamily loans.
While both types of loans can provide borrowers with the non-recourse financing they need to purchase or refinance a multifamily property, there are some key differences between the two.
What Is a HUD Multifamily Loan?
A HUD multifamily loan is a loan that is insured by the Federal Housing Administration, or FHA, and is available for the purchase, refinancing, or development of multifamily properties. HUD multifamily loans are available through a number of different lenders, and these loans may be used for a wide range of properties, from affordable housing to market-rate communities.
What Is a Fannie Mae Multifamily Loan?
A Fannie Mae multifamily loan is a loan that is backed by the Federal National Mortgage Association, or FNMA. These loans may be used for acquiring, refinancing, or construction of apartments, are provided by approved lenders and insured by Fannie Mae. There are many, many different types of Fannie loans, each with their own advantages and disadvantages.
Key Differences Between HUD and Fannie Mae Multifamily Loans
While HUD and Fannie Mae multifamily loans both offer financing for the purchase or refinancing of multifamily properties, there are some key differences between the two.
There are, broadly speaking, no maximum loan amounts for HUD or Fannie Mae multifamily loans. There are some key differences for loan minimums, however. HUD loans tend to start at $4 million (with typical loan amounts starting at $10 million), while Fannie Mae loans can go much, much lower. Fannie’s Multifamily Small Loan program, for example, starts at just $750,000.
Fannie Mae offers both fixed- and variable-interest financing, and even loans that transition from floating to fixed at the borrower’s discretion. On the other side of things, all loans backed by HUD are locked in at a fixed rate for the life of the loan.
In a rising rate environment, it may therefore be preferable to go with a HUD loan. However, if rates are anticipated to decrease, a variable-to-fixed or floating-rate loan from Fannie could be more advantageous.
Loans from HUD have among the longest terms in the multifamily sector. For HUD 221(d)(4) construction financing, for example, you can receive loan terms of up to 43 years. That’s not to say Fannie Mae’s offerings are bad, though — their loans can range between five and 30 years, broadly speaking.
HUD has a clear advantage here, as all of its multifamily financing is fully amortizing, while many of Fannie Mae’s loans are partially amortizing. In the case of the latter, this means a borrower must be prepared to handle a larger balloon payment at the end of a loan’s term.
Fannie Mae loans close much, much faster than HUD loans. The typical Fannie loan takes between 45 and 60 days. By comparison, HUD loans can take between six and eight months, though financing for properties with affordable components can close significantly faster.
While there are ways of getting funding around HUD’s lengthy timelines, like through a bridge-to-HUD loan, Fannie Mae financing clearly has the upper hand here.
So: Is Fannie or HUD Best for You?
As you have seen, there are significant differences between HUD and Fannie Mae multifamily loans. Loans backed by the Department of Housing and Urban Development offer some of the best competitive financing out there, with fully amortizing, long terms the norm — but the wait to get the financing can be much longer than most investors are comfortable with.
Fannie Mae, on the other hand, offers competitive loans at a much faster pace. While they may fall short of HUD’s fully amortizing loans, their interest rates are broadly similar and they generally close in less than two months.
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