Fannie Mae Multifamily Hybrid ARM Loans

Borrowers looking for hybrid ARM financing for multifamily developments don't have to look beyond Fannie Mae's Hybrid ARM Loan for the funding they need.

Fannie Mae Hybrid ARM Loans have five-, seven-, and 10-year fixed-rate period options, after which the loan converts to an adjustable interest rate based on the 30-day average SOFR rate. Fannie Mae Hybrid ARM Loans have an LTV allowance up to 80%, are non-recourse, and are fully assumable (with lender approval.) 

To learn more, check out our official Fannie Mae Hybrid Adjustable-Rate Mortgage Product Sheet or keep reading below for an in-depth explanation of Fannie Mae’s Hybrid ARM financing program.

Sample Fannie Mae Terms for Hybrid ARM Multifamily Loans in 2024

Size: Varies, though typically $6 million maximum (with a lower maximum in smaller markets)

Terms: 30 years, with a 5, 7, or 10-year fixed rate term, which then converts to an adjustable-rate for the rest of the loan 

Amortization: Up to 30 years

Interest Rates: Adjustable rate term based on the 30-day average SOFR rate 

Interest Rate Cap: Adjustable interest rate cannot exceed the initial interest rate by more than 5%, rate cannot be adjusted more than 1% up or down during each adjustment period 

Maximum LTV: Up to 80%

Minimum DSCR: 1.25x (may vary based on market location) 

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

Prepayment Options: Yield maintenance or declining prepayment premiums during fixed-rate term, no prepayment fees during the adjustable-rate term

Eligible Properties

• Properties must have between 5 and 50 units

• Properties must be stabilized, and can include manufactured housing communities

• For acquisitions or refinances, loans must be first lien

Advantages

• Competitive interest rates

• Less fees than comparable Fannie Mae loans

• Loans are non-recourse

• Flexible prepayment options

• 30- 180 day rate locks available (streamlined and early rate locks also available)

Disadvantages

• Requires third-party reports including a property appraisal, property condition assessment, and a Phase I Environmental Assessment

• Replacement reserves are required

• Supplemental financing is not available

Case Study: Investing in Charleston

Mark, a real estate investor, found an appealing investment opportunity – a stabilized multifamily property with 20 units in Charleston, S.C., on the market for $4 million. To secure the property, Mark needed a flexible financing option that could meet his investment goals.

Considering the potential benefits of an adjustable-rate mortgage, Mark turned to Fannie Mae's Multifamily Hybrid ARM Loan program. He decided to put down 20% of the property price ($800,000) and sought to finance the remaining amount ($3.2 million) with the loan.

In line with the requirements of the Hybrid ARM Loan program, Mark's loan request fit comfortably within the typical terms, given the property's price and unit count. He went ahead and submitted his application, which was backed by the required third-party reports.

Fannie Mae approved his application, granting a $3.2 million loan with a seven-year fixed interest rate period. After this period, the loan would convert to an adjustable rate, tethered to the 30-day average SOFR rate. This flexibility, coupled with competitive interest rates and no prepayment penalties during the adjustable-rate term, made the loan an ideal fit for Mark's investment strategy.

With the loan secured, Mark could proceed with the acquisition, expanding his real estate portfolio in the multifamily space.

This is a fictional case study provided for illustrative purposes.