How to join the Fannie Mae Club

4 Replies

One of the advantages of investing in multifamily real estate is the ability to get non-recourse loans on investment properties through Fannie Mae.  These loans are fixed long-term (5,7,10,12) loans with 30 year amortization at about 3.00% above the corresponding treasury rate.  The question I often get is how to I qualify for non-recourse Fannie Mae loans?  There are 3 ways I know of for qualifying:

1) Sign a recourse loan with a local or regional bank and have at least 2 years of ownership and management experience (5+ units).

2) Sign as a key principal (passive) with someone who has Fannie Mae experience and will be the managing member.   

3) Have someone with Fannie Mae experience sign as a KP on your deal if you want to be the general partner.

A couple questions:

Does anyone know of any other ways of qualifying for non-recourse Fannie Mae?  

Does anyone have experience with Fannie Mae DUS lenders?  Which ones do they prefer working with?

Are there any other options for non-recourse debt on multifamily besides Fannie?

There are other Nonrecourse lending options available to multi family operators. There is CM BS, life companies, Freddie Mac and FHA to name a few. All of these options, will require strong borrower financial strength and operator history. They each have varying degrees of difficulty getting approved.

 As far as lenders are concerned, you shouldn't have any problem dealing with any DUS approved lenders. Underwriting for these products are fairly standard across the board.

Fannie underwrites using risk based pricing, ie the lower the LTV the lower the interest rate and to some degree the easier it is to get approved.

The reality check is that  operational and ownership experience go a long way towards approval. My best recommendation is that you get a loan with a bank or other funder and then refinance with a Fannie Loan after a couple of years. New acquisition with no experience is very difficult even with a strong financial statement.

As for lenders, the DUS guide is uniform with respect to guidelines but there are major differences between lenders. I would look to work with a DUS lender that is not owned by a bank. Bank owned DUS lenders tend to have an additional FDIC mindset when underwriting that is sometimes tougher than Fannie's requirements. Lastly, Fannie has very strict reporting requirements so I would make sure my books and property are in order before applying, first impressions go a long way.

@James Eng @Nicolas Paez @Brent Shryock

Found this thread by performing a search...I found a development that has some duplex zoned lots for sale...I was surprised as all get out that the developer was willing to sell to outsiders -- here ALMOST ALWAYS you have to be in the "good ole boy" club - ie part of the construction industry, money man, builder, major plumbing contractor etc to get any multi-family zoned lots in a new development.

I guess the kicker  with this place is the development was started at the start of the bust (end of 2007 beginning of 2008) and the development just stopped for a # of years.  Lots of the cities development is heading this direction - it is literally off of a major highway and a couple big shopping centers are planned at a future point a mile away...they were talking putting a large open air shopping center which I think something similar will get built eventually.  Anyways, it's in a good location.  Just doesnt have much in the way of retail/restaurants around it now, but should in 5 or so years...however it would only take residents about 5-10 mins to get to major restaurant/retail areas.

I just drove over there this evening since it's not far from my house, every finished duplex had tenants in them and the construction company/contractor that put them all in has been in business for a # of years.  The city told me there is high demand for rental housing there and they are looking for more developers.  Right now there are 2 lots avail which I have the funds to purchase and more could be made avail from the developer to an outsider such as me.  My partner would be a contractor who I've vetted and trust.  Basically I want to copy what all the other big guys do around here is partner with someone and get the property built at cost.  Those details can be covered later.

However my question is how tough is it to get a Fannie Small Market Loan for multi family (duplex) new construction?  I'll be making some phone calls to one of the small market lenders but last I checked into I do remember one of their caveats was that for multiple properties all lots must be contiguous.   If I could roll the money over from equity created by cutting overhead/doing some of the work into the next property I'd love to put 5-10+ of these properties in.

Presently I have 10 years experience managing a duplex, and 2 single family units - so 4 units in total - strong financials as well.  Based on what you guys put above would I qualify for a Fannie Multi Family loan or am I lacking a couple qualifications they'd be looking for -- (management of 5+ units, etc)

Hope my questions make sense and would appreciate any feedback.  I think this coming week I'm going to pick up at least one of the lots -- what I'm having a hard time with figuring now is how much cost I can cut off the build if my partner acts as the GC (he works as a contractor and 99% of his work for the past few years has been in new construction so he's familiar with who does good work, dependable etc)  and we do some of the work and cut quite a bit of overhead.  Others can build a quality 4000-5000 sq ft (inc finished area in the basements) 8 bdrm, 6 bath 4 car garage duplex w Smart lap 50 yr siding, vinyl windows and high quality finishes/fence/and lot for $300k all in minus the appliances - So I'm thinking I should maybe be able to get this done for $200k or so?  My partner was thinking this was possible, however was going to run it by a couple other builders tomorrow he'll be working with who have experience building similar properties.  Am I crazy?  The breakdown of construction cost is probably best suited for another topic.    I've crunched the #'s and if the duplexes finished/rented out appraise for $300-320 each duplex, and you have a loan for $240k, (could take your mortgage up to 300k if you could) you will still cash flow when getting market rents of $1300-1500 per unit.

However if you guys think I'd be chasing my tail seeking Fannie financing to put in a few of these duplexes I wont waste my time and will work with my local bank...however I feel I might get a better deal with the Fanny multi family small market loan/dus lender.

I worked with the neighboring city on a rehab a year ago and dealt with this cities inspector as well during the process when he filled in for someone on vacation -- he's pretty laid back so as long as I'm organized getting all the permits/inspections wont be difficult.

I work for a dus lender. PM me if you're still needing info. I live in Frisco area as well.

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