In the United States, residential real estate remains a reliable investment. As many areas still face housing shortages, there is an opportunity to develop, own and manage real estate in every property category in your market. But just because real estate continues to appreciate and in most cases provides a reliable return on investment, it doesn’t mean investors should spend money on development and acquisitions.
Even experienced commercial real estate investors may not fully understand the various financing options available to them. We have explored SBA loans, private loans and other sources of funding from previous articles, but we have not yet covered one of the most important capital capital in investment-grade residential real estate: agency loans.
Why do they call them agency loans? Because they are supported by government-funded agencies or businesses that help manage interest rates, extend payment terms and reduce risk to lenders, they open up funds that would otherwise be unavailable. Without federally supported funding, development will stagnate, reducing available square feet and further driving housing costs. These loans keep the development of multi-family housing at low cost and market rates.
Where did these funds come from? Agent loans are mainly offered through Freddie Mac and Fannie Mae, two of the most famous names in multi-family financing.
Freddie Mac and Fannie Mae operate by purchasing commercial real estate loans directly from lenders. They either hold these loans in their portfolio or bundle them in the secondary market, helping to mitigate lenders’ risk and get capital for new loans for free. In addition to promoting liquidity, these institutions play a crucial role in expanding affordable housing, stabilizing the housing market and maintaining interest rates competitiveness. Investors can obtain single-head and multi-family financing through these programs, which are reliable options even in times of economic uncertainty.
Since agent loans often intersect with affordable housing programs, it is worth mentioning HUD loans and their potential benefits for investors. The U.S. Department of Housing and Urban Development (HUD) oversees Section 8 program, which provides rental assistance to low-income, seniors and disabled families through local public housing agencies. While aimed at supporting tenants, the federal program also provides strategic opportunities for investors in various market sectors. If you are interested in financing that leverages agency-backed financing, let’s explore how these loan options can help you build a flexible and profitable portfolio.
Read on to learn how to use an agent loan to fund your next multifamily investment.
Freddie Mac Loan
Freddie Mac is officially known as the Federal Housing Loan Mortgage Company (FHLMC), and aims to provide liquidity and stability to the housing market. Unlike Fannie Mae, which works primarily with large financial institutions, Freddie Mac buys loans from credit unions, small banks and community lenders, focusing on financing mid-to-low income tenants. The agency works with lenders to specialize in conventional, small balanced, targeted affordable and premium housing loans that allow them to initiate and serve 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 offer more adaptability than other agent-backed financing. For investors looking for scalable, cost-effective multifamily financing, especially in workforce housing, Freddie Mac loans offer a compelling option. Favorable underwriting guidelines and potential incentives can make financing easier, and with floating rate options, borrowers can refinance more easily when interest rates fall. Additionally, Freddie Mac loans are non-recourse, meaning experienced investors can limit personal liability because these loans do not require personal collateral itself.
Fannie Mae Loan
Officially known as the Federal National Mortgage Association (FNMA), Fannie Mae is the country’s largest supporter of fixed-rate mortgages for 30 years. Unlike Freddie Mac, which mainly works with smaller lenders, Fannie Mae works more closely with large banks and corporate lenders. Fannie Mae shares risks with approved lenders through its delegated Underwriting and Services (DUS) program, allowing for more streamlined loan approvals and greater lender discretion in underwriting.
Fannie Mae fundes a wide range of multifamily real estate types, including conventional, rental, cooperative, senior, student and manufactured housing, with loans up to $1 billion per property. Unlike Freddie Mac who sells most of its securities in the secondary market, Fannie Mae retains a large portion of its mortgage-backed securities (MBS) portfolio, maintaining a stronger direct impact on the housing financing market. While Fannie Mae does support affordable housing, its focus goes beyond low-income properties, including middle-income and high-income real estate.
Investors usually choose Fannie Mae loans for low-risk properties and long-term fixed-rate financing. Compared to Freddie Mac, these loans attract experienced investors due to stricter credit and financial requirements. If you plan to hold a multifamily home instead of refinancing in the near future, a Fannie Mae loan provides stability and predictability. They are also ideal for investors with major financial institutions or investors who invest in LEED certified and energy-efficient buildings.
HUD Loan
The U.S. Department of Housing and Urban Development (HUD) is known for managing Section 8 housing programs through local public housing agencies. As long as the property meets the HUD’s security and affordability requirements, the program provides rental assistance to qualified tenants by paying part of the rent directly to the property owner. In return, investors benefit from consistent, government-backed rental payments for Fair Market Rent (FMR). In addition, HUDs need to participate in drug and criminal screening of participating tenants, which helps reduce the risk for certain real estate owners.
However, HUD financing is not limited to low-income or premium housing. The agency also supports market rate properties and provides competitive lending options for investors of all levels. HUD loans provide long-term stable, fully amortized and non-recourse financing, making them an attractive alternative to traditional bank loans. They can also be used to combine market rate and subsidy units’ attributes.
Two popular HUD loan options:
- FHA 223 (F) Loan: This loan is designed for purchase or refinancing (more than 5 units), allows for small amounts of renovation and offers up to 85% loan-to-value (LTV) for up to 35 years. Loan amounts usually start at $2 million and provide flexible financing for investors looking to improve or acquire real estate.
- FHA 221(d)(4) Loan: This loan is ideal for new construction or major rehabilitation projects, covering 90% of the alternative costs of rental assistance properties. With 40-year fixed terms, it offers some minimum interest rates available for construction financing, with loan amounts ranging from $5 million to $100 million.
Investors can leverage HUD loans with Fannie Mae and Freddie Mac financing and combine them with private funds and state or local incentives to develop a comprehensive capital strategy. So, how do you determine the financing portfolio that best suits your business? We are glad you asked.
How Our Loan Brokers Promote Agency Loans
Browsing in the world of agency loans can be complex, making experienced loan brokers a valuable partner in determining the best loan portfolio for your business goals. Since agent lenders do not work directly with borrowers, brokers can help you identify and compare lenders authorized to support agent loans and guide you through the entire process. One of the biggest challenges of agency financing is that the application process can be complex and often requires property conditions requirements assessment (PCNA), construction planning, and careful compliance regulations navigation. Brokers bring their expertise to the desktop, thus facilitating the application process to help you overcome these obstacles and successfully complete the necessary financing.
If you are ready to take the next step to ensure agency financing, please contact our team immediately. We are here to help you find the right loan solution and clear the path from lender selection to loan financing. Our experience can help you simplify your application, ensure the best terms, and set your investment strategy as the road to success.
