7 Reasons Why Agency Loans Will Be a Top Choice for Investors in 2021
Multifamily investors looking to finance the acquisition, refinancing or repositioning of their property have a variety of loan sources to choose from. Agency loans, which include financing products from the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, remain a top choice for many investors. They offer reliable, long-term financing and come in several solutions to fit different investment needs.
Here are seven reasons why agency financing will remain one of the most attractive debt options heading into 2021.
1. Wide Range of Financing Options
Both Fannie Mae and Freddie Mac offer an array of loan products. Whether you’re a small investor or large operator, the agencies have a wide scope of products to fit different investment strategies. From conventional, affordable to manufactured housing and more, the GSEs’ product platform and experience will assure investors that they can get the right product for their business needs.
2. Competitive Terms
Agency loans typically offer ideal long-term, fixed-rate terms that allow the investor to “set it and forget it” with a locked in rate and agreed upon payment schedule. Agencies also have the benefit of higher leverage, which generally tops out at 80% loan to value (LTV), and tiered pricing for the purchase or refinance of multifamily properties.
3. Nonrecourse Loans Are Common
Fannie Mae and Freddie Mac offer nonrecourse loan options, meaning that the debt is secured only by the loan collateral (e.g. the apartment community). These loans are subject to review and approval based on the financial strength and experience of the borrower.
4. Speed and Certainty of Execution
Technological advancements have equaled the playing field for Fannie Mae and Freddie Mac in terms of their ability to process loans quickly. Agency products are standardized when it comes to requirements and terms, so once you close your first loan, you know what to expect on your next one and can look forward to certainty of execution on your transaction.
5. Green Financing Incentives
These green programs offer investors the opportunity to reduce their environmental and social impact while lowering operating costs. Fannie Mae’s Green Rewards and Freddie Mac’s Green Advantage loans reward borrowers who renovate, retrofit or upgrade their properties to reduce energy and water usage by 30%. Borrowers can underwrite the projected owner and tenant savings resulting from these upgrades. As a result, they can receive preferential pricing, including a lower interest rate and additional loan proceeds.
6. Critical, Stable and Reliable Liquidity Source
Fannie Mae and Freddie Mac’s primary purpose is to provide liquidity to the nation’s mortgage finance system during all cycles. While other sources of capital may not be readily available in challenging times, the agencies offer a more reliable source of long-term debt capital to fund your investment.
7. Specialized Small Loan Options
The Fannie Mae Small Loan and Freddie Mac Small Balance Loan programs were created specifically to support smaller multifamily investors and preserve small multifamily housing stock (properties with less than 50 units). With teams focused directly on small loans ($6 million and under for Fannie Mae and $7.5 million and under for Freddie Mac), the agency programs offer streamlined underwriting and closing to lower closing costs, incentivized interest rates, as well as options for yield maintenance and declining prepayments.