Eligible properties include:

• Expiring Low Income Housing Tax Credit (LIHTC) deals

• Properties refinancing existing tax-exempt bonds

• Rental Assistance Demonstration (RAD) eligible properties

• HUD Section 8 Housing Assistance Program (HAP) Contract properties

• Loans insured under Sections 202 or 236 of the National Housing Act

• Properties with existing Rural Housing Service (RHS)/Rural Development (RD) Section 515 and RD Section 538 Loans

Plus, properties must meet low-income restrictions by: 

• Having at least 20% of the project's units rented to families earning less than or equal to 50% of the Area Median Income (AMI), or:

• Having at least 40% of the project's units rented to families earning less than or equal to 60% of the Area Median Income (AMI), or:

• Section 8/Project-Based Housing Assistance Payments for at least 20% of the project's units

Assumability:  Loans are typically assumable with lender approval

Advantages

• Competitive interest rates

• Loans are non-recourse

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

• Supplemental financing is allowed

• Third-party subordinate debt allowed under certain circumstances

Disadvantages

• Requires third-party reports including a Property Condition Assessment/Physical Needs Assessment, an Appraisal, and a Phase I Environmental Assessment (may not be required in certain circumstances)

• Typically requires a $15,000 processing fee (which includes major third-party reports and lender due diligence)

• Typically requires replacement reserves of $250/unit per year

• 2% rate lock fee (refunded at closing)

Case Study: Expiring LIHTC in Phoenix

Take, for instance, the case of Michael, a real estate investor in Phoenix, Arizona who owns a property with an expiring Low Income Housing Tax Credit (LIHTC) deal. Understanding the importance of preserving affordable housing in his community, he sought a loan that would allow him to refinance the property and continue to provide affordable rental units.

With its attractive terms and alignment with his goals, the Fannie Mae Affordable Housing Preservation Loan emerged as an excellent option. This loan is specifically designed for properties like Michael's, under Section 8 Housing Assistance Program (HAP) contracts, with expiring LIHTC, and those benefiting from similar government subsidy programs.

Michael's property was valued at $10 million, with most units rented to families earning less than or equal to 60% of the Area Median Income (AMI), thereby satisfying the program's low-income restrictions. As this Fannie Mae loan program provides a maximum LTV of up to 80%, Michael was able to secure a loan of up to $8 million.

The loan term was flexible, ranging between 5 to 30 years, and it was required to end at the same time as his original mortgage loan. Moreover, the loan offered an extended amortization period of up to 35 years, reducing Michael's monthly payments and easing the financial burden.

One of the key features that attracted Michael to this program was the non-recourse nature of the loan. This aspect ensured his personal assets were safe in case of a loan default. Additionally, the loan was fully assumable with lender approval, making it a more appealing option if he ever decided to sell his property in the future.

By opting for the Fannie Mae Affordable Housing Preservation Loan, Michael was able to maintain his property's affordable status while ensuring the property remained financially viable. This example underscores the importance of tailored financial solutions like the Fannie Mae loan programs in preserving and promoting affordable housing.

This is a fictional case study provided for illustrative purposes.

In this article:

1. Fannie Mae Financing for Subsidized Housing Developments 
2. Sample Fannie Mae Terms for Affordable Housing Preservation Loans in 2024
3. Advantages
4. Disadvantages
5. Case Study: Expiring LIHTC in Phoenix
6. Get Financing