For multifamily properties, the most attractive debt in commercial real estate comes from Fannie Mae and Freddie Mac — the government-sponsored enterprises (GSEs) that buy and securitize apartment loans. Agency debt offers higher leverage, lower rates, longer terms, and non-recourse standard — a combination unmatched by any other lender type.

This lesson covers how agency debt works, the loan products, eligibility, and how to access it.

Why agency debt dominates multifamily

Banks compete in multifamily, but Fannie and Freddie typically beat them on:

Rate — 50-150 bps lower than conventional bank rates for stabilized properties
Leverage — up to 80% LTV (vs 70-75% for banks)
Term — 5, 7, 10, 12, 15, 20, or 30 years
Amortization — up to 30 years
Non-recourse — standard, with bad-boy carveouts only
Interest-only periods — partial-term or full-term I/O for stronger deals
Assumption — agency loans can usually be assumed by a buyer when you sell, which is a value-add to your exit

The downside: agency debt is only for multifamily (apartments, student housing, senior housing, manufactured housing communities, and some affordable housing). It does not finance office, retail, industrial, hotel, or any non-residential property.

If you're buying multifamily, agency should always be on your shopping list.

How agency lending works

Fannie and Freddie don't lend directly. They buy loans from approved lender networks who originate the loans according to strict guidelines.

Fannie Mae DUS

Fannie Mae's program is called DUS (Delegated Underwriting and Servicing). DUS lenders are pre-approved to underwrite and close loans without needing per-loan Fannie approval. This makes the process faster.

DUS lenders include:

Walker & Dunlop
Berkadia
CBRE Capital Markets
Greystone
KeyBank Real Estate Capital
Newmark Knight Frank
M&T Realty Capital
Capital One Multifamily

These are large national platforms. They originate billions of dollars of agency loans per year.

Freddie Mac

Freddie Mac has two main products:

Optigo Conventional — for stabilized multifamily over a certain size threshold
Small Balance Loan (SBL) — designed specifically for smaller multifamily ($1M-$7.5M typically)

Freddie's lender network is similar to Fannie's. Many lenders are approved for both.

The lender's role

Even though the loan is ultimately bought by the agency, the lender:

Underwrites the deal
Closes and funds it (using their own capital briefly)
Sells the loan to the agency
Continues to service the loan throughout its term

Your relationship is with the lender, not directly with Fannie or Freddie. Choose the lender carefully — they have meaningful influence on how the deal is structured.

Loan products in detail

Fannie Mae standard fixed-rate

Loan size: $1M to no maximum (most common $3M-$50M)
LTV: Up to 75% (sometimes 80%)
Term: 5, 7, 10, 12, 15, 18, or 30 years
Amortization: Up to 30 years
DSCR: Min 1.25x (1.30x for higher leverage)
Recourse: Non-recourse with carveouts
Prepayment: Yield maintenance OR step-down
I/O: Partial-term I/O common; full-term I/O for stronger deals

Fannie Mae structured ARM

Hybrid floating/fixed rate products
7- or 10-year terms
Lower rate for sponsors who want some floating exposure
Usually requires interest rate cap (lender-required hedge)

Fannie Mae Green Financing

Pricing benefit (5-30 bps off rate)
Property must commit to energy/water efficiency improvements
Borrower must meet measurable savings targets
Increasingly popular for repositioning properties

Freddie Mac SBL (Small Balance Loan)

The SBL is one of the most attractive products for smaller multifamily investors:

Loan size: $1M-$7.5M (occasionally up to $10M in select markets)
LTV: Up to 80%
Term: 5, 7, or 10 years (hybrid ARMs also available)
Amortization: Up to 30 years
DSCR: 1.20x in top markets, 1.25x standard, 1.30x small markets
Recourse: Non-recourse with carveouts
Prepayment: Step-down (much friendlier than yield maintenance)
Closing time: 45-60 days (faster than conventional Fannie)
Eligibility: 5+ unit multifamily; properties must be at least 90% occupied for 90 days

For an Orlando 24-unit property, SBL is often the best loan available. Significantly better than community bank conventional debt.

Freddie Mac Optigo Conventional

For larger deals ($7.5M+) and value-add properties, Freddie Optigo offers:

Up to 80% LTV
5-15 year terms
Variable or fixed rates
More flexible underwriting on transitional / value-add properties
Bridge-to-perm structures
Tax credit and affordable housing programs

Eligibility requirements

Not every multifamily property qualifies for agency debt:

Property requirements

5+ residential units (smaller is technically eligible but rarely funded)
Stabilized — generally 90%+ occupied for 90+ days
Habitable condition — no major deferred maintenance
Standard property type — garden-style, mid-rise, high-rise, walk-up, manufactured housing community
Geographic location — most US markets eligible; some rural restrictions

Borrower requirements

Single-asset entity (LLC, LP) for the borrower
Sponsor experience — at least 1-3 prior multifamily transactions
Credit score — 680+ typically required for sponsors
Net worth ≥ loan amount
Liquidity — 9-12 months of debt service in liquid assets
No significant litigation or bankruptcy history

Disqualifying factors

Properties with significant short-term rentals (Airbnb)
Properties with significant non-residential income (10%+ commercial)
Major deferred maintenance
Recent fire or major casualty
Litigation involving the property or sponsor
Subject to restrictive covenants that prohibit refinancing

Pricing — how rates are set

Agency loans are priced as a spread over US Treasuries:

Loan rate = 10-Year Treasury + Spread

Spreads typically range from 150-275 bps depending on:

LTV (lower LTV = lower spread)
DSCR (higher DSCR = lower spread)
Loan size (larger loan = lower spread)
Borrower strength
Market quality
Property quality
Term (10-year typically lowest spread)

In practice, in a 4.0% 10-year Treasury environment, agency loans typically price between 5.5-6.5%. Compare to conventional bank multifamily at 6.5-8.0% for the same property and you see the agency advantage.

Rate locks

Agency loans lock the rate at application, not at closing. This protects borrowers from rate movements during DD. Rate locks typically require:

Application fee (refundable if rate is locked)
Good-faith deposit
Standby commitment from the lender

Rate locks can be 30, 60, or 90 days. Longer locks cost more.

The agency closing process

Agency loans take longer to close than conventional but follow a more structured process:

Week 1-2: Loan application

Sign engagement with DUS lender
Submit borrower package (financials, REOs, credit)
Submit property package (T-12, rent roll, OM)
Lender issues quote

Week 2-4: Underwriting

Property appraisal ordered (lender-controlled)
Phase I environmental ordered
Property condition assessment ordered
Borrower financial review
Property income verification
Site visit by lender

Week 4-6: Loan committee

Lender's internal credit committee approves
Final terms documented
Loan locked at agreed rate

Week 6-8: Loan documentation

Loan documents drafted
Title work completed
Insurance verified
Final closing conditions cleared

Week 8-10: Closing

Documents executed
Funds wired
Loan funded
Lender immediately sells loan to Fannie or Freddie

Total timeline: 60-90 days. Plan accordingly.

Costs

Agency debt isn't free. Typical costs:

Lender origination fee: 0.75-1.5% of loan
Application fee: $5K-$20K (refundable in some structures)
Good-faith deposit: 1-2% of loan (refundable at closing)
Appraisal: $4K-$10K
Phase I environmental: $2K-$5K
Property condition assessment: $3K-$8K
Lender legal: $10K-$30K
Title insurance: 0.4-0.6% of loan
Survey: $3K-$8K
Tax / insurance escrows: 2-6 months upfront

All-in costs typically 2.5-4% of loan amount. Higher than conventional but offset by better terms over the loan's life.

Reserves

Agency loans typically require:

Tax escrow: monthly contribution to property tax reserve
Insurance escrow: monthly contribution to insurance reserve
Replacement reserve: $250-$450/unit/year typically (deposited monthly)
Capex reserve for major repairs (sometimes one-time at closing, sometimes ongoing)

These are held by the lender and released against verified expenses. They reduce flexibility but ensure the property is properly maintained.

When NOT to use agency

Despite all the advantages, agency isn't always the right choice:

Property doesn't qualify (commercial mix, short-term rentals, etc.)
Heavy value-add or repositioning — bridge debt makes more sense
Need to close in 30 days — agency takes 60-90
Fix-and-flip — prepayment penalty hurts short holds
Mixed-use property with heavy commercial — conventional handles this better
First-time multifamily investor with no track record — banks may be more flexible

Real example — Freddie SBL on a Casselberry property

A 30-unit garden-style apartment property in Casselberry FL:

Purchase price: $4,500,000
NOI: $290,000
Going-in cap: 6.4%

Loan options compared:

| Lender | Rate | LTV | Term | Recourse | Prepayment | |---|---|---|---|---|---| | Local community bank | 7.25% | 70% | 5y | Full recourse | Step-down | | Regional bank | 6.85% | 70% | 7y | Partial recourse | Yield maintenance | | Freddie SBL | 5.95% | 75% | 10y | Non-recourse | Step-down |

The Freddie SBL wins on every dimension — lower rate, higher leverage, longer term, non-recourse, friendlier prepayment.

Loan size: $3,375,000 × 6 = annual debt service ~$240K → DSCR ~1.21x ✓

Annual savings vs the regional bank loan: roughly $30K in interest plus an extra $135K of leverage (so less equity required). Over 10 years, that's $300K+ of return improvement on a $4.5M deal.

This is why every multifamily buyer should check agency pricing first.

What to take away

Fannie Mae and Freddie Mac dominate multifamily financing for stabilized properties
Agency debt offers the lowest rates, highest LTV, longest terms, and standard non-recourse
Fannie Mae DUS for larger loans; Freddie Mac SBL ($1M-$7.5M) for smaller multifamily
Originated by approved DUS / Optigo lenders, not directly by the agencies
Property must be 5+ units, stabilized (90% occupied 90+ days), standard product
Loans take 60-90 days to close, cost 2.5-4% in fees, require lender-controlled reserves
For any qualified multifamily deal, agency should always be on the shopping list
Not for value-add, mixed use, or commercial — use bridge or conventional for those

Next lesson: CMBS — the Wall Street capital markets debt that powers larger and more complex commercial deals.

Agency Debt — Fannie Mae and Freddie Mac Multifamily