Agency Lending vs. Bank Lending for Multifamily
Fannie Mae and Freddie Mac compared with balance sheet bank lending for apartment properties.
Introduction
Multifamily properties benefit from the broadest and most competitive lending landscape in commercial real estate. Two of the most common financing sources for apartment properties are agency lenders (Fannie Mae and Freddie Mac) and commercial banks. Both offer attractive terms for stabilized multifamily assets, but they serve different borrower profiles, property types, and investment strategies.
Understanding where each excels, and where each falls short, is essential for optimizing the cost of capital on any multifamily investment.
What Is Agency Lending?
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that provide liquidity to the multifamily housing market by purchasing and securitizing apartment loans. Loans are originated by approved agency lenders (known as Delegated Underwriting and Servicing lenders, or DUS lenders, for Fannie Mae) and sold to the agencies, which pool them into mortgage-backed securities.
Agency loans offer up to 80% LTV for stabilized multifamily properties, competitive fixed rates tied to U.S. Treasury benchmarks, terms of 5 to 30 years with 30-year amortization, non-recourse execution with standard carve-outs, interest-only options for qualifying properties, supplemental financing availability, and full assumability.
Agency lending is exclusively for multifamily properties (typically 5+ units). The agencies have standardized underwriting guidelines, published rate sheets, and consistent execution, making them the most transparent and predictable source of multifamily financing.
What Is Bank Lending for Multifamily?
Banks and credit unions provide commercial real estate loans from their own balance sheets, funded by deposits and other capital sources. Bank lending for multifamily is relationship-driven, with terms and underwriting that can vary significantly from institution to institution.
Bank multifamily loans typically offer 65% to 75% LTV (occasionally higher for strong borrower relationships), competitive rates that may be fixed or floating, shorter terms of 3 to 10 years (though some banks offer longer), recourse or partial recourse for most transactions, greater flexibility on property condition and borrower profile, and the ability to finance smaller properties that may not meet agency minimums.
Banks are particularly competitive for local borrowers with existing banking relationships, smaller multifamily properties, and transitional assets that are approaching but have not yet reached full stabilization.
Key Differences
Agency lending through Fannie Mae and Freddie Mac and balance sheet bank lending represent two distinct approaches to multifamily financing, differing in leverage, recourse, term length, prepayment structure, and underwriting flexibility.
| Feature | Agency Lending | Bank Lending |
|---|---|---|
| Leverage | Up to 80% LTV | 65%–75% LTV; relationship exceptions possible |
| Interest Rate | Competitive fixed; tied to U.S. Treasury benchmarks | Fixed or floating; set by bank's cost of funds |
| Recourse | Non-recourse with standard carve-outs | Full or partial recourse |
| Term Length | 5–30 years; fully amortizing options available | 3–10 years |
| Underwriting Flexibility | Standardized guidelines; 90%+ occupancy required | More flexible on property condition and borrower profile |
| Prepayment | Yield maintenance or defeasance | Step-down penalties or no restrictions (varies by relationship) |
| Assumability | Fully assumable | Generally not assumable |
| Supplemental Financing | Available (Fannie Mae and Freddie Mac programs) | Not typically offered |
When Agency Lending Is the Better Fit
Agency financing is the optimal choice when the property is stabilized with occupancy above 90%, when the sponsor wants the highest leverage available at the lowest rate, when non-recourse execution is important, when the hold period is long-term and the sponsor wants to lock in a rate for 10 to 30 years, or when the sponsor plans to sell the property and the assumable loan structure adds value to the buyer.
When Bank Lending Is the Better Fit
Bank financing is well-suited for smaller multifamily properties that fall below agency minimums, properties in lease-up or with occupancy below 90% that do not yet meet agency stabilization requirements, borrowers who value a direct relationship with their lender and want flexibility for future modifications, short-term hold strategies where a 3 to 5 year bank loan aligns with the investment timeline, or situations where prepayment flexibility is a priority.
How GSP Optimizes Multifamily Financing
George Smith Partners has deep relationships with Fannie Mae and Freddie Mac DUS lenders as well as national and regional banks. We evaluate every multifamily financing opportunity across the full spectrum of available capital, identifying the source and structure that best aligns with the property's profile, the sponsor's strategy, and the current rate environment. For properties in transition, we often structure a bank loan or bridge facility with a clear path to agency takeout financing upon stabilization.
Frequently Asked Questions
What is the difference between a Fannie Mae/Freddie Mac loan and a bank loan for apartments?
Agency loans are originated by approved lenders and purchased by Fannie Mae or Freddie Mac, offering up to 80% LTV, non-recourse terms, and fixed rates for up to 30 years. Bank loans are held on the bank's balance sheet, typically offering 65% to 75% LTV with recourse, shorter terms, but more underwriting flexibility for properties or borrowers that do not meet agency standards.
Can I get an agency loan on a small apartment building?
Agency programs have minimum loan amounts that vary by lender and program. Fannie Mae's Small Loan program and Freddie Mac's Small Balance Loan program are designed for smaller multifamily properties, typically starting around $1 million. For properties below these thresholds, bank or credit union financing may be the better option.
Why would I choose a bank loan over an agency loan if agency offers better terms?
Bank loans offer advantages in specific situations: the property may not meet agency stabilization requirements, the borrower may need faster execution or more flexible underwriting, the hold period may be short enough that a bank's prepayment terms are more favorable, or the banking relationship may offer competitive pricing that rivals agency rates for that specific borrower.
Are agency loans assumable?
Yes. Both Fannie Mae and Freddie Mac loans are fully assumable, subject to lender approval and an assumption fee (typically around 1% of the outstanding loan balance). This is a meaningful benefit when selling a property, as a buyer can inherit an attractive rate locked in during a lower-rate environment.
Financing a Multifamily Property?
We evaluate every multifamily opportunity across agency, bank, and alternative sources to find the optimal execution.
Start the Conversation