Agency Multifamily Loans

Fannie Mae and Freddie Mac's multifamily programs are the backbone of U.S. apartment finance. They originate $150+ billion annually in fully amortizing, 30-year mortgages at roughly 5.5–6.5% all-in cost. For stabilized multifamily, there is no cheaper or friendlier debt source.

Key takeaways

• Fannie DUS (Delegated Underwriting and Servicing) and Freddie Mac Multifamily are the two largest multifamily lenders, originating $150–$180 billion per year.
• Loans are fully amortizing (principal + interest), 30-year term, 60–65% LTV, rates typically 100–150 bp over Treasury.
• Full recourse (the borrower is personally liable), but strong sponsors want that credibility signal.
• Covenants are moderate: DSCR ≥ 1.2x, occupancy > 90%, FNMA/FMCC audit requirements.
• Closing is 60–90 days if underwriting is clean; deals rarely blow up post-approval.
• Financing is available for both new construction (with take-out commitments) and acquisitions of stabilized properties.

The GSE multifamily system

Fannie Mae and Freddie Mac are government-sponsored enterprises chartered by Congress to support housing finance. For single-family mortgages, they're well-known (Fannie buys 30% of U.S. mortgages). For multifamily, they're less visible but equally dominant.

Fannie's multifamily program is called DUS (Delegated Underwriting and Servicing). Freddie's is Multifamily (or the "Traditional" program). Both operate similarly:

1. Loan originator (mortgage broker, bank, or correspondent lender) applies for a loan commitment.
2. Fannie/Freddie underwrites the sponsor, property, and market, then issues a loan commitment good for 120 days.
3. Borrower closes the loan within the commitment period, funded by the originator.
4. Fannie/Freddie buys the loan from the originator (or the originator keeps servicing it).
5. Fannie/Freddie securitizes the loan into mortgage-backed securities (MBS) or holds it in portfolio.

This process is standardized and professional. A borrower with audited financials, a strong track record, and a stabilized property can close a $50 million Fannie loan in 75 days flat.

Fannie DUS: The most competitive program

Fannie Mae's DUS program is the largest by volume. In 2023, Fannie originated $100+ billion in multifamily loans. DUS loans have the following characteristics:

• Loan size: $5 million to $400 million (Fannie has a $400M per-loan cap, but larger deals are parceled into multiple loans)
• Term: 30 years, fully amortizing (you pay down principal every month)
• LTV: Up to 70% for strong sponsors, 60–65% typical
• DSCR: Minimum 1.2x (net operating income / annual debt service)
• Rate: Treasury yield + 100–150 bp (5.5–6.5% in 2024)
• Lock period: Interest-rate lock from commitment to close (60–120 days typical)
• Recourse: Full recourse to borrower

A DUS loan on a $50 million stabilized multifamily property might look like:

• Purchase price: $50 million
• Appraised value: $52 million (typical appraisal premium)
• Fannie loan: 65% LTV = $33.8 million
• Borrower equity: $16.2 million (31%)
• 30-year term, DSCR 1.3x

At 6% all-in rate, the all-in cost of debt is 6%, a 400+ bp spread above the 4–5% cap rate. The sponsor's levered equity return would be 10–12% before appreciation.

Freddie Mac Multifamily: The alternative

Freddie Mac's multifamily program is the second-largest, competing directly with Fannie. Freddie often has slightly different pricing, sometimes more flexibility on secondary markets or mixed-use (apartments + retail). In 2023, Freddie originated $50–$70 billion in multifamily loans.

Key differences:

• Secondary market focus: Freddie is more active in Tier-2 and Tier-3 metros (Nashville, Charlotte, Tampa) vs. Fannie's bias toward top-10 metros.
• Mixed-use: Freddie is more receptive to apartments with small retail/office components.
• Pricing: Freddie sometimes prices 10–20 bp tighter or looser than Fannie depending on market conditions and portfolio appetite.
• Sponsor flexibility: Freddie has slightly more tolerance for sponsors with shorter track records (3 years vs. 5 years for Fannie).

For a savvy borrower, the competitive dynamic is favorable. A mortgage broker will shop a deal to both Fannie and Freddie, securing term sheets from each, and closing with whichever offers better pricing or terms.

Underwriting standards: Who gets approved?

Fannie and Freddie have documented underwriting criteria. A borrower needs:

Sponsor/Borrower:

• 5+ years experience in multifamily (3+ for Freddie, less for new Freddie "growth" program)
• Audited financials (2–3 years)
• Minimum net worth 20% of loan amount (often waived for large, well-known operators)
• No recent bankruptcies, tax liens, or criminal records
• Primary residence in the U.S. (or equivalent for offshore investors)

Property:

• Minimum 50 units
• Stabilized or near-stabilized (occupancy > 90%)
• Located in a market with population growth, job growth, or strong fundamentals
• Third-party appraisal (cost: $5k–$20k depending on property size)
• Rent roll (tenant names, lease terms, rents)
• 2–3 years trailing operating statements (T12, trailing twelve months)

Market:

• Population growth > 0% (no declining metros)
• No overbuilding in the immediate submarket
• Reasonable cap rate relative to property type and location

Deal Structure:

• DSCR ≥ 1.2x at close (usually conservative underwriting, often 1.3x–1.4x)
• LTV ≤ 70% (65% typical)
• Loan amount ≤ $400 million (per loan)

Agencies are boring in the best way: if you meet the checklist, you get approved. If you don't, you're rejected. There's little subjective horse-trading.

The 1031 exchange advantage

Many multifamily acquisitions financed via Fannie/Freddie are 1031 exchanges. A sponsor sells a property, wants to defer capital gains tax, and buys a new property within 45 days (identification) and closes within 180 days (full exchange).

Fannie and Freddie are very 1031-friendly. They understand the time pressure, allow expedited closings, and don't penalize a 1031 borrower. If you're doing a 1031 into a new apartment building, Fannie/Freddie is the natural choice.

This is a structural advantage vs. bridge lenders, who have time constraints but are less predictable in underwriting, or CMBS lenders, who are slower and less accommodating.

Rate locks and market risk

Once Fannie/Freddie issues a loan commitment, the borrower gets an interest-rate lock. This is valuable in a rising-rate environment. A borrower might lock at 6% for 120 days, confident they won't face 6.5% rates before closing.

However, there are floating-rate extensions. If you miss a milestone (property appraisal delayed, seller financing contingencies), the lender can float the rate or charge an extension fee (10–25 bp per month). This incentivizes on-time closings.

If rates fall (rare in recent years), the borrower is stuck with the higher locked rate. Fannie/Freddie don't allow borrowers to shop rates mid-commitment.

Adjustable-rate mortgages (ARMs)

Fannie and Freddie also offer ARM products: 5/1 ARMs, 7/1 ARMs (fixed for 5 or 7 years, then adjustable for 25 or 23 years). ARMs price 50–75 bp cheaper than 30-year fixed, offering a cheaper carry during the fixed period.

A sponsor expecting to hold and refinance in 5 years might take a 5/1 ARM at 5.75% vs. a 30-year fixed at 6.25%. If cap rates normalize in 5 years, the sponsor refi's and pockets the savings. If cap rates stay compressed, the sponsor faces higher rate risk at the adjustment date.

ARMs work for sponsors confident in their exit or in sponsors betting on rate declines. They're less suitable for buy-and-hold sponsors or risk-averse sponsors.

Speed and certainty

Fannie/Freddie closings are remarkably predictable. If you're committed and underwriting is clean, you will close on time. There's little drama. This contrasts sharply with CMBS (which can slow down mid-deal) or bridge lenders (who may reprice or withdraw if property values shift).

For a sponsor doing a 1031 exchange or a time-sensitive acquisition, Fannie/Freddie is the right choice.

New construction and take-out loans

Fannie and Freddie also finance new construction multifamily, issuing "construction loans" that convert to "take-out permanent loans" at stabilization (90% occupancy, 1 year operating history).

A developer might:

1. Secure land.
2. Get a Fannie construction commitment (short-term, usually floating at SOFR + 200 bp).
3. Close the construction loan, draw down as the building is built.
4. Open units and begin leasing.
5. At 90% occupancy and 1 year operating history, trigger the "take-out," converting the construction loan to a 30-year permanent DUS loan.

The take-out rate is locked at the beginning of the construction period (often 120 days out, with extensions for overruns). This is a critical risk: if rates spike during construction, the developer faces higher permanent rates or has to shoulder the gap (bridge to get out of the construction loan).

The competitive pressure

Fannie and Freddie's dominance means tight pricing and little room for negotiation. A borrower can shop between Fannie and Freddie, but not much further. If the deal doesn't qualify for agency debt (sponsor too weak, property too small, market too niche), the borrower has to turn to bridge lenders or boutique multifamily lenders, who will price at 7–9%+.

The spreads have compressed since 2010. A DUS loan today at Treasury + 125 bp is skinny compared to 2009 (when spreads were 300+ bp). This reflects confidence in multifamily and the sheer size of the programs.

Understanding the DUS underwriting process

Related concepts

• Understanding CRE financing options
• Multifamily as the most investable asset class
• Real estate allocation within a portfolio

Next

Agency multifamily loans are ideal for stabilized apartment buildings with strong sponsors. But not all CRE fits that mold. Industrial warehouses with 15-year net leases to credit tenants (like Amazon) have different financing needs and risk profiles. Life insurance companies fill that niche with long-term, patient, low-leverage capital. The next article covers how life company loans work and when they are the right alternative to agency and CMBS debt.