Financing Options to Pair with Assumed Loan on MultiFamily

Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes

I’m considering a multi-family building in the Chicago area that has a Fannie/Freddie type loan in place at a very low interest rate. After assuming the loan, there is still another $600k that I would need in order to come respectfully close to the asking price. I don’t have access to that amount in cash, but could pull together $250k +/- personally and through money partners. What are my options for satisfying the remaining $350k? Are there lenders who will take second position liens on these kinds of deals? What are my other options besides seller financing to put together the capital stack?

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John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

@Demetrius Davis you have received a lot of advice that is questionable. Freddie and Fannie apartment loans are definitely assumable. To my knowledge, there is no creative way to have a second position loan behind them. I have an awesome lender with Walker and Dunlop who has done my last three Freddie loans, and he could answer this better.

In all reality, most of these non recourse loans are never assumed because the seller wants too much. There was probably roughly 25% equity in the deal when the seller purchased/refinanced, and now there is an additional 15-25% that the seller wants on top of that. Why would anyone leave that much money in a deal when they could just go originate a new loan with Fannie/Freddie?

The last issue you will run into is that these loans require a few more things.... you have to have net worth equal to or great than the loan balance excluding your primary residence, and you also need to have plenty of liquidity and experience to qualify.

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
4y
@Demetrius Davis lot's to cover here so I'll try to tackle these one at a time...
1. Assuming a Fannie/Freddie loan - technically, you cannot assume a Fannie/Freddie loan. I'm kind of splitting hairs here...you can still buy the property...but FHA/VA/USDA loans are assumable. If you are purchasing a property that has a Fannie/Freddie loan this is what we describe as a "subject to" transaction. Because you are buying the property and the loan will stay in place under the original borrower with Fannie/Freddie. They are the ones that have a "due on sale" clause. So you can still buy a property with a Fannie/Freddie loan but doing it correctly is different.
2. Coming up with the difference - and this is why we usually DON'T do "assumable" loans. By the time you do get all of that money together, you would have been able to get a regular mortgage anyway. I cannot tell the value of this property, but I can certainly run some numbers if you want to share the following:
- Purchase Price
- After Repair Value
- Rehab Amount
3. Second Lien Lenders - this is not possible on a "sub to" transaction unless it's through a private person/lender
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
4y
Quote from @Demetrius Davis:

I’m considering a multi-family building in the Chicago area that has a Fannie/Freddie type loan in place at a very low interest rate. After assuming the loan, there is still another $600k that I would need in order to come respectfully close to the asking price. I don’t have access to that amount in cash, but could pull together $250k +/- personally and through money partners. What are my options for satisfying the remaining $350k? Are there lenders who will take second position liens on these kinds of deals? What are my other options besides seller financing to put together the capital stack?

Hey Demetrius! Are you buying this as a primary residence or investment property? Not many lenders are willing to take second position unless it is through a private lender that is willing to assume that risk.
[email protected]818-269-7983
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Demetrius Davis
OP
Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes
4y
@Andrew Postell does this apply to commercial loans by Fannie and Freddie? The subject property is a 19-unit building.
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Demetrius Davis
OP
Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes
4y
Quote from @Erik Estrada:

Quote from @Demetrius Davis:

I’m considering a multi-family building in the Chicago area that has a Fannie/Freddie type loan in place at a very low interest rate. After assuming the loan, there is still another $600k that I would need in order to come respectfully close to the asking price. I don’t have access to that amount in cash, but could pull together $250k +/- personally and through money partners. What are my options for satisfying the remaining $350k? Are there lenders who will take second position liens on these kinds of deals? What are my other options besides seller financing to put together the capital stack?

Hey Demetrius! Are you buying this as a primary residence or investment property? Not many lenders are willing to take second position unless it is through a private lender that is willing to assume that risk.

@Erik Estrada it’s a 19-unit building. I apologize that I didn’t clarify that I was referring to commercial lending.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
4y
Quote from @Demetrius Davis:

Quote from @Erik Estrada:

Quote from @Demetrius Davis:

I’m considering a multi-family building in the Chicago area that has a Fannie/Freddie type loan in place at a very low interest rate. After assuming the loan, there is still another $600k that I would need in order to come respectfully close to the asking price. I don’t have access to that amount in cash, but could pull together $250k +/- personally and through money partners. What are my options for satisfying the remaining $350k? Are there lenders who will take second position liens on these kinds of deals? What are my other options besides seller financing to put together the capital stack?

Hey Demetrius! Are you buying this as a primary residence or investment property? Not many lenders are willing to take second position unless it is through a private lender that is willing to assume that risk.

@Erik Estrada it’s a 19-unit building. I apologize that I didn’t clarify that I was referring to commercial lending.

Commercial lending does not follow Fannie/Freddie guidelines. I am a little confused on how you are assuming a Fannie/ Freddie loan on a commercial building.
[email protected]818-269-7983
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Demetrius Davis
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Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes
4y
Quote from @Erik Estrada:

Quote from @Demetrius Davis:

Quote from @Erik Estrada:

Quote from @Demetrius Davis:

I’m considering a multi-family building in the Chicago area that has a Fannie/Freddie type loan in place at a very low interest rate. After assuming the loan, there is still another $600k that I would need in order to come respectfully close to the asking price. I don’t have access to that amount in cash, but could pull together $250k +/- personally and through money partners. What are my options for satisfying the remaining $350k? Are there lenders who will take second position liens on these kinds of deals? What are my other options besides seller financing to put together the capital stack?

Hey Demetrius! Are you buying this as a primary residence or investment property? Not many lenders are willing to take second position unless it is through a private lender that is willing to assume that risk.

@Erik Estrada it’s a 19-unit building. I apologize that I didn’t clarify that I was referring to commercial lending.

Commercial lending does not follow Fannie/Freddie guidelines. I am a little confused on how you are assuming a Fannie/ Freddie loan on a commercial building.

@Erik Estrada Freddie and Fannie offer commercial loans with low interest rates on commercial multifamily properties. The loans are assumable by the new owner and typically have 10-year terms. They qualify the buyer and also charge a 1% fee.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
4y
Quote from @Demetrius Davis:

Quote from @Erik Estrada:

Quote from @Demetrius Davis:

Quote from @Erik Estrada:

Quote from @Demetrius Davis:

I’m considering a multi-family building in the Chicago area that has a Fannie/Freddie type loan in place at a very low interest rate. After assuming the loan, there is still another $600k that I would need in order to come respectfully close to the asking price. I don’t have access to that amount in cash, but could pull together $250k +/- personally and through money partners. What are my options for satisfying the remaining $350k? Are there lenders who will take second position liens on these kinds of deals? What are my other options besides seller financing to put together the capital stack?

Hey Demetrius! Are you buying this as a primary residence or investment property? Not many lenders are willing to take second position unless it is through a private lender that is willing to assume that risk.

@Erik Estrada it’s a 19-unit building. I apologize that I didn’t clarify that I was referring to commercial lending.

Commercial lending does not follow Fannie/Freddie guidelines. I am a little confused on how you are assuming a Fannie/ Freddie loan on a commercial building.

@Erik Estrada Freddie and Fannie offer commercial loans with low interest rates on commercial multifamily properties. The loans are assumable by the new owner and typically have 10-year terms. They qualify the buyer and also charge a 1% fee.

Interesting. I have never seen a Freddie/Fannie loan for a 19 unit building. Usually they are for 1-4 units only for Multifamily. Do you know what this loan program is called? 10 year term as in, fully amortizing? Interest-only and then a balloon? 10 year adjustable?
[email protected]818-269-7983
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Demetrius Davis
OP
Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes
4y
@Erik Estrada here’s a link to a site that explains it: https://www.commercialrealesta...
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
4y
Quote from @Demetrius Davis:

@Erik Estrada here’s a link to a site that explains it: https://www.commercialrealesta...

Wow I have never seen this before. Definitely will take a look at this. Thank you for sharing this!
[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
Website View Page
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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
4y
@Demetrius Davis you have received a lot of advice that is questionable. Freddie and Fannie apartment loans are definitely assumable. To my knowledge, there is no creative way to have a second position loan behind them. I have an awesome lender with Walker and Dunlop who has done my last three Freddie loans, and he could answer this better.
In all reality, most of these non recourse loans are never assumed because the seller wants too much. There was probably roughly 25% equity in the deal when the seller purchased/refinanced, and now there is an additional 15-25% that the seller wants on top of that. Why would anyone leave that much money in a deal when they could just go originate a new loan with Fannie/Freddie?
The last issue you will run into is that these loans require a few more things.... you have to have net worth equal to or great than the loan balance excluding your primary residence, and you also need to have plenty of liquidity and experience to qualify.
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Demetrius Davis
OP
Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes
4y
@John Warren thanks a lot for clarifying things! Also, thanks for your points about what it takes to qualify for these loans.
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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
4y
@Demetrius Davis ok, got it. And I see you already have people responding. So yes, being a commercial Fannie/Freddie loan is a totally different thing. Sorry about the confusion. This is more of a residential forum. There is an actual "commercial" forum for you to post things like this in. You'll get a lot more responses to it over there. Thanks for your understanding with all of this. As you can see, just about any detail is important, lol. Thanks again!
1 Reply
John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
4y
@Demetrius Davis for sure. @Andrew Postell was also correct about the residential side of things. Those are two very different products for sure!
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