GSE Financing Guide: Freddie Mac and Fannie Mae for Multifamily

What Is GSE Financing for Multifamily?

Government-sponsored enterprise (GSE) financing from Freddie Mac and Fannie Mae provides the most favorable loan terms available for stabilized multifamily properties: non-recourse structure, long-term fixed rates, 30-year amortization, and competitive pricing. GSE loans typically offer 50 to 100 basis points lower interest rates than bank or CMBS alternatives, which can mean hundreds of thousands of dollars in savings over the loan term and significantly higher investor returns.

How to Determine If Your Deal Qualifies

GSE loans have specific requirements. Here's what to evaluate:

Property Requirements

Financial Requirements

Borrower Requirements

Both agencies require borrowers to have multifamily experience (typically 3+ years), sufficient net worth (usually equal to the loan amount), and adequate liquidity (typically 9 to 12 months of debt service in post-closing reserves).

Step-by-Step GSE Evaluation Process

Step 1: Screen for Basic Eligibility

Before spending time on a deal, check the three disqualifiers: Is occupancy above 90%? Does in-place DSCR exceed 1.20x? Is the property in acceptable physical condition? If any answer is no, the property likely needs a bridge loan first to stabilize before agency financing.

Step 2: Compare Program Options

Freddie Mac and Fannie Mae each offer multiple programs:

For loans under $7.5M: Compare Freddie Mac SBL (Small Balance Loan) vs. Fannie Mae SMAL (Small Mortgage Apartment Loan). SBL offers slightly more flexibility on DSCR and occupancy. SMAL may offer more competitive rates on larger small-balance loans.

For loans above $7.5M: Standard Freddie Mac Optigo vs. Fannie Mae DUS. Negotiate with your mortgage broker to get quotes from both.

Step 3: Calculate Maximum Loan Amount

The maximum loan is the LOWER of the LTV limit and the DSCR limit:

LTV Method: $5,000,000 purchase x 80% = $4,000,000 max loan

DSCR Method: $340,000 NOI / 1.25 (min DSCR) = $272,000 max annual debt service. At 6.0% rate with 30-year amortization, this supports approximately $3,790,000 max loan.

In this case, the DSCR constraint produces a lower max loan ($3.79M vs. $4.0M), so the DSCR is the binding constraint. This is common — most agency deals are DSCR-constrained rather than LTV-constrained.

Step 4: Model the Complete Financing Package

Include all costs: origination fees (typically 0.5% to 1.0%), rate lock deposit, third-party reports (appraisal, PCA, environmental, survey — usually $15,000 to $30,000 total), legal fees, and any rate buydown costs.

Step 5: Stress Test

Model how the deal performs if rates increase 50 to 100 basis points between application and closing. Also stress test for a scenario where the appraisal comes in below the purchase price, which would reduce the max LTV loan amount.

When GSE Financing Doesn't Work

Use bridge financing instead when: occupancy is below 90%, the property needs significant renovation, the hold period is less than 3 years, the borrower lacks agency experience, or the DSCR falls below 1.20x. Bridge loans from debt funds offer 65% to 80% LTV at higher rates (7% to 10%) with shorter terms (1 to 3 years) and interest-only payments, allowing you to stabilize the property before refinancing into agency debt.