Agency Loans
CMBS loans provided through Fannie Mae and Freddie Mac are complementary to Agency loans for ValueXpress. Fannie Mae and Freddie Mac provide competitive rates and low fees for Multifamily and Manufactured Housing Communities. ValueXpress provides agency loans through Fannie Mae’s and Freddie Mac’s Small Balance Program (SBL) up to $7.5 million and Fannie Mae’s and Freddie Mac’s Large Balance Program for larger loans.
Church Creek Townhomes
Hampton, VA
$1,800,000 Fannie Mae Loan
WHAT ARE AGENCY LOANS?
Agency loans are conventional fixed-rate, first mortgage loans secured by stabilized income-producing multifamily and manufactured housing communities that meet Fannie Mae and/or Freddie Mac underwriting guidelines.
WHEN ARE AGENCY LOANS A GOOD FIT?
The two most compelling benefits of Agency loans are as follows:
- Most Agency loans are non-recourse (no personal guarantees)
- Agency loans allow for unrestricted cash out on refinances in which the new agency loan amount is greater than the loan balance being paid off
For example, if an apartment complex worth $10 million is refinanced with a 75% loan-to-value agency loan ($7.5 million) and the existing loan balance is $5 million, the $2.5 million of excess loan proceeds are provided to the borrower without restriction on what the excess funds can be used for. Many commercial multifamily lenders do not allow for unrestricted cash out.
In regard to non-recourse, most commercial lenders require that a commercial loan be 100% guaranteed personally by all of the individual owners of the property. In the event of a default and foreclosure, if the lender does not recover the full loan balance through a sale of the property or the loan, each individual is personally responsible to repay the shortfall, and the lender can easily get a judgment to compel the individuals to pay. With an Agency loan, the individuals do not have any personal liability to repay the loan in the event of default and foreclosure.
Lakeview Arms Apartments
Brookhaven, MS
$1,332,500 Fannie Mae Loan
Agency loans can be fixed or floating rate, fixed-rate loans have a 5-, 7- or 10-year loan term. The term can be extended to 20 years with a rate reset after the initial fixed-rate period. Agency loans amortize on long 25- or 30-year schedules and can have interest-only payments during the first few years of the loan term. Agency loans close fast — in as little as 30 days — and all agency loans are assumable.
Agency loans have lower transaction costs than CMBS loans and are competitive with commercial bank loans. In addition, agency loans have more prepayment options than CMBS loans, including declining “step-down” options similar to commercial bank loans.
How Are Agency Loans Underwritten?
Agency loans are underwritten based on the income generated from the property being financed (i.e., the most recent 12 months’ income from tenants that occupy the property less property operating expenses during the same period).
Agency loan underwriting does not consider any income the property owner earns from other sources, such as salary income or net income from other real estate sources. However, agency loans have minimum credit score requirements for the owners (typically 680, on average, for more than one owner; or 620 for an individual owner) and other specific underwriting criteria. Click here for information on agency underwriting criteria.
What Is the Structure of an Agency Loan?
For a Quick Reference Guide to Agency Loan Terms, click here
What Types of Income-Producing Commercial Real Estate Are Eligible for Agency Loans?
The following types of leased income-producing real estate are eligible for Agency Loans:
- Multifamily
- Manufactured Housing Communities
Within these categories, the following sub-categories are also eligible:
Eligible Multifamily: Student Housing, Age-Restricted (Seniors) Multifamily, Furnished Multifamily, Multifamily with Section 8 voucher tenants, Multifamily with HAP contracts, Multifamily with IRS Section 42 tax credits, Cooperative properties (underlying loans).
Eligible Manufactured Housing Communities (MHCs; also known as Mobile Home Parks): MHCs with up to 20%-25% landlord-owned homes and MHCs with single-wide homes.
What Types of Properties Are Not Eligible for Agency Loans?
Construction and substantial rehabilitation projects are not eligible for agency loans.
Healthcare (defined as real estate with meals and health services provided) are not eligible for agency loans. Properties with well below-market occupancy are not eligible for agency loans (but may qualify for a bridge loan). Owner-occupied real estate is generally not eligible for agency loans.
What Loan Amounts Are Available for Agency Loans?
Agency loans are available for loan amounts from $1 million to $100-plus million.
Can Mezzanine Financing Be Added to an Agency Loan to Increase Leverage?
Yes. Supplemental loans are available 12 months after the closing of the senior agency loan.
What Property Condition Is Required to Be Eligible for an Agency Loan?
Class A, Class B or Class C properties are eligible for agency loans.
Classifying commercial property is subjective, but some general criteria that may qualify a property for an agency loan include the following: less than 20 years old or recently renovated; limited or no deferred maintenance; and/or competitive within its market. The best way to qualify a property is to contact your ValueXpress representative with the property address. Together, you can use Google earth to look at the property and determine its eligibility.
What Is the Demographic Criteria for Agency Loans?
Agency loans are available for properties in all 50 states and Puerto Rico. Properties must be located in a major metro, secondary or tertiary location.
Properties located in a rural area are generally eligible for agency loans, but at higher interest rates and lower LTVs. Determination of a rural location is subjective, but a general criteria is a population of less than 20,000 persons. Please contact your ValueXpress representative with the property address to determine if the property is eligible for an agency loan due to its potential rural location.
What Are the Costs to Obtain an Agency Loan?
The majority of the costs to obtain an agency loan is the fees for an appraisal, property condition report, and Phase I environmental site assessment and lender’s legal charges.
In addition, typical commercial real estate loan closing costs include title insurance costs, survey charges and borrower counsel fees. The typical expense deposit to cover these costs is $8,500 in the SBL program and $12,500 in the large loan program. Should the borrower cancel the loan during the underwriting and closing process, any unspent deposit will be returned to the applicant.
What Are the Prepayment Penalties for an Agency Loan?
The standard prepayment penalty for agency loans that provide the lowest interest rate to the borrower is yield maintenance. Agency loans offer a declining “step-down” prepayment penalty in exchange for a higher interest rate.
Cordoba Apartments
Hampton, VA
$4,150,000 Fannie Mae Loan
Important Documents
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