Apartment Loan Rates Are on the Rise and This is Having an Effect on Multifamily Investment Activity

Apartment loan rates are on the rise and this is having a direct effect on multifamily investment activity. As interest rates continue to rise, investors may be forced to give up properties they fought hard to secure just a few years ago.

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Fortunately, many alternatives exist for apartment loans. These include bank loans, agency apartment mortgages, HUD/FHA and Commercial Mortgage Back Securities (CMBS) loan programs.

Fannie Mae

The Federal National Mortgage Association (Fannie Mae) is a government-sponsored enterprise that buys mortgages and packages them into securities that can be sold to investors. This helps ensure that lenders have a steady source of mortgage funding. It also supports the financing of affordable multifamily housing.

Fannie Mae’s multifamily loan products offer streamlined lending and lower expenses for the purchase or refinance of apartment complexes with five or more units. The company uses a nationwide network of Delegated Underwriting and Servicing (DUS) lenders to underwrite, finance, and service these loans. These loans include conventional multifamily, affordable housing, and manufactured home communities.

In addition to offering affordable multifamily mortgages, Fannie Mae provides a variety of other services. These include economic and strategic research, which is used to create forecasts for the multifamily industry. These forecasts help lenders better understand market trends.

Fannie Mae was created in 1939 to combat the lack of affordable housing during the Great Depression. It helped to provide a continuous and steady funding for the mortgage markets and introduced a new type of mortgage, the fixed-rate mortgage. The organization has since expanded its role to provide more financing options for homebuyers and to increase the availability of multifamily housing.

In 2008, Fannie Mae experienced severe financial problems. Unethical lending practices during the housing boom led to a subprime mortgage crisis, which caused the company’s stock price to drop and it was delisted from the New York Stock Exchange. Despite these troubles, Fannie Mae remains one of the largest backers of 30-year fixed-rate mortgages in the United States.

Freddie Mac

Freddie Mac was created by the federal government to provide an ongoing flow of mortgage-related capital into the housing market in order to foster affordable American homeownership. The company, along with its sister company Fannie Mae, is one of the most important sources of financing for apartment investors and their properties.

The Freddie Mac Small Balance Multifamily Loan program offers many unique and beneficial features for apartment purchases and refinances, with a minimum loan size of $1,500,000. The application process is simple and streamlined, and the lender will typically close the loans within 45 days. Loans are non-recourse and offer flexible prepayment penalties ranging from yield maintenance to soft stepdown.

In addition to market rate Freddie Mac multifamily loans, the agency also provides programs for other asset classes such as student housing and senior housing. They also offer specialized perks for affordable housing properties such as heightened leverage and reduced debt service ratio requirements.

Despite the 2008 financial crisis, Freddie Mac and Fannie Mae remain profitable and continue to play an important role in the housing market. Both companies are considered quasi-governmental enterprises (GSEs) and operate under the supervision of the Federal Housing Finance Agency. Freddie Mac and Fannie Mae purchase mortgage-backed securities from lenders, pool them together into mortgage pools, and sell them on Wall Street.

HUD/FHA

HUD recently cleared a backlog that was slowing down the loan process for apartment investors. This has led to more competitive financing terms for multifamily investors, and it could open up some deals that were not previously feasible. Additionally, HUD multifamily loans are some of the most flexible and affordable lending options for investors, allowing them to maximize leverage and take on more risk.

The Federal Housing Administration (FHA) is a department of the United States government that insures mortgages on single-family and multifamily homes. The FHA’s mission is to help more people get into homeownership and avoid foreclosure. In the case of multifamily housing, the FHA has several programs that offer competitive lending terms for borrowers with limited incomes or credit issues. FHA loans are usually non-recourse and fully assumable, with lender and FHA approval.

FHA loan programs are backed by the full faith and credit of the U.S. government, which means they are considered low-risk investments for Wall Street. This makes them available to a wide range of borrowers, including small developers. The program has become a vital component of the residential real estate market, stabilizing it in times of economic turmoil.

Most of the FHA’s programs allow borrowers to borrow up to 80% loan-to-value, which is higher than conventional commercial loans. Many of these loans also have longer term and amortization schedules. In addition, they are typically non-recourse and offer lenient requirements for borrowers’ income, credit and debt-to-income ratios.

Janover

The interest rate on a multifamily apartment loan depends on the location of the property, asset class, LTV, and DSCR. Conventional mortgage products, such as Fannie Mae, Freddie Mac, CMBS, and HUD loans, work off an index plus a spread. The index is typically the 10-year Treasury, but the spread is determined by the lender.

Janover Ventures is a company that matches commercial real estate investors with lenders for multifamily and apartment loan options. It has a portfolio of websites that rank highly on Google, which allows it to capture and process loan opportunities quickly and efficiently. Its goal is to remove the barriers that separate borrowers from the right financing. Blake Janover, CEO of the company, is a former CPA and business owner with a diverse background in entrepreneurship. He has built companies transcending various industries and countries and has successfully executed a corporate exit. He is also an official member of the Forbes Real Estate Council and a 2021 graduate of Harvard Business School’s Owner/President Management Program.

Janover uses an algorithm to match its clients with multifamily apartment loan providers and other lenders. This service can save borrowers time and money by eliminating the need for brokers, financial intermediaries, and underwriters. Its website also offers free educational digital media assets and teaches borrowers about available loan options.