Fannie Mae Choice Refinance

Refinancing a Fannie Mae multifamily loan might sound like a challenge, but with the Fannie Mae Choice Refinance program, the process is easier than it's ever been.

The Fannie Mae Choice Refinance program has an 80% LTV allowance, a minimum DSCR requirement of 1.25x, and has both fixed and adjustable-rate options, making it a flexible and versatile option for all kinds of Fannie Mae multifamily borrowers.

Plus, the Choice Refinance program has reduced documentation requirements, leading to a significantly faster underwriting process and less hassles for both borrowers and lenders alike. In addition, Choice Refinance loans are non-recourse, and are fully assumable with lender approval and a 1% fee. 

Sample Fannie Mae Terms for Choice Refinance Loans in 2024

Size:  No minimum loan amount 

Terms:  5 to 30 years 

Amortization: 30 years (in most cases) 

Interest Rate: Both fixed and adjustable rate options available, interest-only loans also available in some cases 

Maximum LTV:  80%, 75% for cash-out 

Minimum DSCR:  1.25x 

Recourse:  Loans are non-recourse with standard “bad boy” carve-outs 

Prepayment Options:  Yield maintenance period/1% prepayment premium (may be waived once the yield maintenance period is finished) 

Occupancy Requirements: 85% physical occupancy, 70% economic occupancy

Eligible Properties:  Stabilized Fannie Mae-financed multifamily properties in good standing

Advantages

• Faster underwriting/approval process

• Less documentation required

• Competitive interest rates

• Loans are non-recourse

• Supplemental financing available after 12 months

• Rate locks available up to 180 days before closing

• Loans are fully assumable with lender approval and 1% fee

• Existing prepayment premiums (from old/pre-existing loan) may be reduced or waived in some situations. If it is not waived, the prepayment premium can be funded with the proceeds of the new Choice Refinance loan.

Disadvantages

• Usually requires new third-party reports including Appraisal, Physical Needs Assessment (though they may be streamlined for Choice Refinances). May or may not require a Phase I Environmental Assessment.

• New title insurnace policy typically required

• Requires replacement reserves (minimum of $250/unit per year)

• 2% rate lock fee typically required (refunded after Fannie Mae purchases loan, usually around 30 days after closing)

Case Study: Refinancing a Senior Housing Property in Sacramento

Let's delve into the story of Patricia, a seasoned real estate investor based in Sacramento, California. One of her key assets is a well-maintained senior housing property located in a quiet, residential neighborhood. This charming, single-building property consists of 40 units, offering a secure and peaceful environment for its residents. It's known for its beautiful gardens, spacious common areas, and a range of services tailored to the needs of seniors.

Patricia acquired this property a few years ago for a purchase price of $5 million, with an initial loan-to-value ratio of 75%, thus securing a loan of $3.75 million. Now, with the property's value appreciating to approximately $6 million and the previous loan nearing its term end, Patricia was seeking a suitable refinancing option.

The Fannie Mae Choice Refinance program emerged as an ideal choice for Patricia. The 80% maximum LTV allowance meant she could potentially secure a loan of up to $4.8 million based on the property's current value, significantly more than her initial loan. Moreover, with a minimum DSCR requirement of 1.25x, the financial stability of her property, boasting a consistently high occupancy, was perfectly suited.

Patricia appreciated the flexibility of having both fixed and adjustable-rate options, allowing her to make a choice in line with her financial strategy. The fact that the loan was non-recourse added an extra layer of protection for her personal assets.

Another highlight of the Choice Refinance program was its reduced documentation requirements and expedited underwriting process, offering Patricia a smoother and quicker transition to the new loan. Despite necessitating a new appraisal and physical needs assessment, and a replacement reserve requirement, Patricia found these steps manageable.

The 2% rate lock fee was a significant outlay at the onset, but the refund feature provided a sense of comfort. Also, Patricia could potentially reduce or even waive existing prepayment premiums from her pre-existing loan, which made the program even more attractive.

Thanks to the Fannie Mae Choice Refinance program, Patricia successfully refinanced her senior housing property, consolidating her position as a reputable provider of senior living solutions in Sacramento.

This is a fictional case study provided for illustrative purposes.