When an investor crosses from 4-unit to 5-unit properties, they enter the commercial real estate financing world. Conventional residential loans stop at 4 units. For 5 or more units, Fannie Mae Delegated Underwriting and Servicing (DUS) and Freddie Mac Optigo are the primary agency-backed multifamily loan programs, and they work very differently from anything in the residential world.
Fannie Mae DUS Program
DUS lenders are approved mortgage banking firms that underwrite, close, and service Fannie Mae multifamily loans without loan-by-loan Fannie Mae approval. The DUS lender shares in the risk of loan losses, which incentivizes conservative underwriting. Loan amounts start at $750,000 for small loan products and go into the hundreds of millions for large transactions. Terms include 5, 7, 10, 12, and 15-year fixed rate options with 30-year amortization. Minimum DSCR is 1.25 for most market rate properties.
Freddie Mac Optigo Program
- ✦Optigo conventional multifamily: minimum loan $1 million; 5 to 10-year fixed terms; 30-year amortization; minimum 1.25 DSCR
- ✦Optigo small balance: loans from $1 million to $7.5 million; designed for workforce housing and smaller apartment buildings
- ✦Both programs offer supplemental financing -- a second mortgage on a property already carrying a Fannie or Freddie first lien -- for capital improvements or equity extraction
- ✦Freddie Mac SBL (small balance loan) is available in most markets through approved Optigo lenders
How Agency Multifamily Compares to Bank Financing
Agency multifamily carries a full-term fixed rate with no balloon payment risk, which is its primary advantage over bank commercial loans that typically have 5 to 10-year fixed periods and then reset. Agency programs are also non-recourse for stabilized properties meeting DSCR requirements, meaning the lender's recourse in default is limited to the property rather than the borrower's personal assets. For investors building a long-term hold portfolio, agency multifamily is typically the preferred permanent financing.
Aria at vicariointel.com can walk through Fannie Mae DUS and Freddie Mac Optigo program parameters for specific multifamily scenarios including DSCR minimums, LTV caps, and how to identify approved DUS and Optigo lenders.
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