Residential real estate continues to be a solid investment across the United States. With many regions still facing housing shortages, there are opportunities to develop, own, and manage properties at every property class in your market. But just because properties continue to appreciate and for the most part provide solid return on investment doesn’t mean that investors should take easy money when it comes to development and acquisition.
Even seasoned commercial real estate investors may not be fully aware of the wide range of financing options available to them. We’ve explored SBA loans, private loans, and other funding sources in previous articles, but we have yet to cover one of the most significant sources of capital in investment grade residential real estate: agency loans.
Why are they called agency loans? Because they are backed by government-sponsored agencies or enterprises that help to manage rates, extend payment terms, and reduce the risk to lenders, opening up funds that would otherwise be unavailable. Without federally backed funds, development would stall, reducing available square footage and further driving up the cost of housing. These loans keep the development of low-cost and market-rate multifamily housing progressing.
Where do these funds come from? Agency loans are primarily offered through Freddie Mac and Fannie Mae, two of the most well-known names in multifamily financing.
Freddie Mac and Fannie Mae operate by purchasing commercial real estate loans directly from lenders. They either hold these loans in their portfolios or bundle them for sale on the secondary market, helping to mitigate lender risk and free up capital for new loans. Beyond facilitating liquidity, these agencies play a crucial role in expanding access to affordable housing, stabilizing the housing market, and keeping interest rates competitive. Investors can access both single-family and multifamily financing through these programs, making them a reliable option even in times of economic uncertainty.
Since agency loans often intersect with affordable housing initiatives, it’s worth mentioning HUD loans and their potential benefits for investors. The U.S. Department of Housing and Urban Development (HUD) oversees the Section 8 program, which provides rental assistance to low-income, elderly, and disabled households through local public housing agencies. While designed to support tenants, this federal program also presents strategic opportunities for investors across various market segments. If you’re interested in leveraging agency-backed financing, let’s explore how these loan options can help you build a resilient and profitable portfolio.
Read on to learn how you can leverage agency loans to fund your next multifamily investment.
Freddie Mac Loans
Freddie Mac, officially known as the Federal Home Loan Mortgage Corporation (FHLMC), was established to provide liquidity and stability to the housing market. Unlike Fannie Mae, which primarily works with larger financial institutions, Freddie Mac purchases loans from credit unions, small banks, and community lenders, focusing on financing for moderate- to low-income renters. The agency partners with lenders specializing in conventional, small balance, targeted affordable housing, and senior housing loans, allowing them to originate and service loans while Freddie Mac retains ownership. Most of these loans are then bundled and sold on the secondary market, reducing lender risk and increasing access to capital.
Freddie Mac loans are known for their flexibility, offering floating-rate structures, hybrid adjustable-rate mortgages (ARMs), and structured loan options that provide more adaptability than other agency-backed financing. For investors seeking scalable, cost-effective multifamily financing—particularly in workforce housing—Freddie Mac loans present a compelling option. Favorable underwriting guidelines and potential incentives can make financing more accessible, and with floating-rate options, borrowers can refinance more easily if interest rates drop. Additionally, Freddie Mac loans are non-recourse, meaning seasoned investors can limit personal liability, as these loans do not require personal collateral beyond the property itself.
Fannie Mae Loans
Fannie Mae, officially known as the Federal National Mortgage Association (FNMA), is the largest backer of 30-year fixed-rate mortgages in the country. Unlike Freddie Mac, which primarily partners with smaller lenders, Fannie Mae works more closely with large banks and corporate lenders. Through its Delegated Underwriting and Servicing (DUS) program, Fannie Mae shares risk with approved lenders, allowing for more streamlined loan approvals and greater lender discretion in underwriting.
Fannie Mae finances a broad range of multifamily property types, including conventional, rent-restricted, co-op, senior, student, and manufactured housing, with loan amounts reaching up to $1 billion per property. Unlike Freddie Mac, which sells most of its securities on the secondary market, Fannie Mae retains a significant portion of its mortgage-backed securities (MBS) portfolio, maintaining a stronger direct influence on the housing finance market. While Fannie Mae does support affordable housing, its focus extends beyond low-income properties to include middle- and upper-income-targeted real estate.
Investors typically choose Fannie Mae loans for lower-risk properties and long-term, fixed-rate financing. These loans appeal to experienced investors due to stricter credit and financial requirements compared to Freddie Mac. If you plan to hold multifamily properties for the long term rather than refinance in the near future, Fannie Mae loans offer stability and predictability. They are also an excellent fit for investors with existing relationships with major financial institutions or those investing in LEED-certified and energy-efficient buildings.
HUD Loans
The U.S. Department of Housing and Urban Development (HUD) is best known for administering the Section 8 housing program through local public housing agencies. This program provides rental assistance to eligible tenants by paying a portion of their rent directly to property owners, as long as the property meets HUD’s safety and affordability requirements. In return, investors benefit from consistent, government-backed rent payments at Fair Market Rents (FMR). Additionally, HUD requires drug and criminal screenings for participating tenants, helping to reduce certain leasing risks for property owners.
However, HUD financing isn’t limited to low-income or senior housing. The agency also supports market-rate properties and offers competitive loan options for investors at all levels. HUD loans provide long-term stability, full amortization, and non-recourse financing, making them an attractive alternative to traditional bank loans. They can also be used for properties that combine both market-rate and subsidized units.
Two Popular HUD Loan Options:
- FHA 223(f) Loan: Designed for the purchase or refinancing of multifamily properties (5+ units), this loan allows for minor renovations and offers up to 85% loan-to-value (LTV) with terms of up to 35 years. Loan amounts typically start at $2 million and provide flexible financing for investors looking to improve or acquire properties.
- FHA 221(d)(4) Loan: Ideal for new construction or major rehabilitation projects, this loan covers up to 90% of replacement costs for rental assistance properties. With 40-year fixed terms, it offers some of the lowest interest rates available for construction financing, with loan amounts ranging from $5 million to $100 million.
Investors can leverage HUD loans alongside Fannie Mae and Freddie Mac financing, combining them with private funding and state or local incentives for a well-rounded capital strategy. So, how do you determine the best financing mix for your business? We’re glad you asked.
How Our Loan Brokers Facilitate Agency Loans
Navigating the world of agency loans can be complex making an experienced loan broker an invaluable partners in determining the best loan mix for your business goals. Since agency lenders do not work directly with borrowers, brokers help you identify and compare lenders authorized to support agency loans and guide you through the process. One of the biggest challenges with agency financing is that the application process can be complex, often requiring Property Condition Needs Assessments (PCNAs), construction plans, and careful navigation of compliance regulations. Brokers bring their expertise to the table, facilitating the application process to help you overcome these hurdles and successfully close on necessary financing.
If you’re ready to take the next step in securing agency financing, reach out to our team today. We are here to help you find the right loan solution and to clear the path from lender selection through to the financing of your loan. Our experience can help you streamline your application, secure the best terms, and set your investment strategy on the path to success.
