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Terms of Fannie Mae Apartment Financing, Part 2

April 2, 2014

Fannie Mae apartment loans are easier to qualify for than conventional community bank loans, which are regulated by the Federal Reserve and have more stringent underwriting guidelines. At Apartment Loan Store, we consider our Fannie Mae loans “lite doc” or “stated income loans.” This is because tax returns are not collected, and we do not do a debt-to-income or global ratio. Furthermore, we are not required to have the borrower fill out Internal Revenue form 4506 (authorizing the lender to get a transcript from the IRS of your tax returns, showing they have been filed as you presented them to the lender). Fannie Mae Apartment loans are made mostly to the income of the property and the quality of the property. However, the borrower does have to have good credit, some post-closing liquidity, and preferably some experience owning a multifamily property of 5 units or more. Here are the main qualifications for a Fannie Mae apartment loan:

Property Qualifications:

  • Must be at 90% occupancy for 90 days
  • Must show economic occupancy (that tenants are actually paying the rent) at 90% for 90 days
  • Property has to be in good condition or need a minimal amount of repairs to be put into good condition. A Property Condition Needs Assessment (PCNA) is required. 
  • Net Operating Income (NOI) calculated with a minimum of 5% vacancy
  • Debt Coverage Ratio (DCR) minimum of 1.25 to 1
  • Properties that have more than 10% students or military may need a waiver from Fannie Mae.
  • Rental concessions (discounts in rent) have to be disclosed. If consistent (such as $50 off per month for a full year), these concessions have to be annualized and taken off the rent roll.
  • All section 8 tenants (tenants that have vouchers from the housing authority showing subsidies) need to be disclosed

Borrower Qualifications:

  • Credit Score of 680 or above, with no bankruptcy or foreclosures in the past 10 years
  • A net worth equal to or greater than the loan being applied for
  • Liquidity requirement to include the down payment, plus closing costs, plus 9 to 12 months of principal and interest payments in additional post-closing liquidity. IRA or 401K or other retirement funds cannot be used as part of the liquidity requirement.
  • Experience owning a multifamily property of five units or more. You can apply for a waiver with professional multifamily property management.
  • Preferred that the borrower live within reasonable driving distance of the subject property, or at least in the same state. If the property is located in a state other than the borrower's, it is preferred that the borrower have experience owning a multifamily property successfully in that state.
  • Borrower is required to have a positive net operating income on all their business and investment properties when combined.  

By Terry Painter, President