CMBS Loans vs. Agency Loans for Multifamily Financing

Fannie Mae and Freddie Mac Multifamily Loans vs. CMBS

When it comes to getting financing for a multifamily property, Fannie Mae and Freddie Mac multifamily loans, also known as agency loans, are some of the most popular options on the market. When compared with CMBS financing, these agency loans have a variety of similarities and differences. Both agency and CMBS are typically non-recourse, fully assumable, and offer highly competitive interest rates. However, agency loans usually offer even lower rates than CMBS, with rates starting at 3.75-3.9%.

In addition, agency loans have a significantly smaller minimum loan amount, at $1 million, compared to the $2 million minimum set by the vast majority of CMBS lenders. Plus, agency multifamily loans usually offer 30-90 day rate locks, with early rate lock options extending up to 180 days. In comparison, CMBS loans offer little in the way of interest-rate locks, with many borrowers lucky if they can lock their rate a week before closing.

CMBS vs. Agency Loan Prepayment

CMBS and agency loans are actually somewhat similar when it comes to prepayment. Both can be somewhat difficult to prepay, and both typically offer options including yield maintenance and defeasance. This is because, like CMBS loans, many Freddie Mac and Fannie Mae loans are pooled and securitized to create bonds.

CMBS vs. Agency Terms and Amortization

CMBS loans typically have 5, 7, or 10 year terms and are partially-amortizing or even interest-only loans. In contrast, Fannie Mae and Freddie Mac both have fully-amortizing, 30-year loan options for multifamily properties. This can be beneficial to borrowers, since they won’t have to refinance their loan or sell the property in order to avoid a large balloon payment at the end of their loan term.

CMBS vs. Agency Loan Borrower Eligibility

With all the benefits of agency multifamily loans, you might be wondering: why even bother with CMBS? Well, the truth is that Fannie Mae and Freddie Mac loans can be very difficult to quality for. Borrowers typically need great credit scores, experience owning or managing similar projects, and very strong financials. In contrast, CMBS loans are available to those who may not have the greatest credit or the strongest financials. This makes them accessible to much wider variety of borrowers.

Of course, it’s also important to note Fannie Mae and Freddie Mac multifamily loans are only available for multifamily properties. In comparison, CMBS loans are available to a much wider swath of property types, including hotels, office buildings, self-storage facilities, industrial properties, and much, much more.