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Fannie Mae Reduced Occupancy Affordable Rehab (ROAR) Loans
Fannie Mae ROAR loans offer financing at competitive terms for any multifamily affordable housing property looking to significantly renovate.
If you own a Multifamily Affordable Housing (MAH) property, and you want to make significant renovations, you don't necessarily need to turn to a construction loan. Instead, you might want to consider a Fannie Mae Reduced Occupancy Affordable Rehab (ROAR) loan.
ROAR loans offer generous terms, including allowing rehab costs of up to $120,000 per unit, an up to 90% "stabilized" LTV allowance, and a "stabilized" minimum 1.15x DSCR. Plus, ROAR loans only require 50% occupancy and 1.00x DSCR during the rehabilitation period, making the process easier and less stressful for borrowers and lenders alike.
To learn more, check out our official Fannie Mae Reduced Occupancy Affordable Rehab Product Sheet or keep reading below for an in-depth explanation of the ROAR financing program.
Sample Fannie Mae Terms for Reduced Occupancy Affordable Rehab (ROAR) Loans in 2024
Size: $5 million minimum, no maximum
Use: Acquisitions and refinances
Terms: 5 to 30 years
Amortization: Up to 35 years
Interest Rate: Fixed-rate for most loans, variable-rate financing available only for Credit Enhancement Mortgage Loan bond transactions. Loans are interest-only during the rehab period.
Maximum LTV: 80%, 90% "as stabilized" for Low Income Housing Tax Credit (LIHTC) properties
Minimum DSCR: 1.15-1.20x
Prepayment Penalty: Yield maintenance or declining prepayment options
Rehab Period: Rehabilitation must be complete within 12-18 months
Eligible Borrowers: Borrowers should have demonstrated experience owning and operating Multifamily Affordable Housing (MAH) properties
Eligible Properties: Stabilized Multifamily Affordable Housing (MAH) properties with planned renovations of up to $120,000/unit
Advantages
Allows borrowers to execute substantial rehabilitations without the need for a construction loan
Fast underwriting/approval process
Flexible amortizations
Competitive interest rates
90% LTV allowance
Loans are Interest-only during the rehab period
Only available for Multifamily Affordable Housing (MAH) properties
Properties must be fully stabilized within 18 months of loan origination
Disadvantages
Case Study: Rehabbing an Austin Property
Elizabeth, an experienced real estate investor, owned a Multifamily Affordable Housing (MAH) property with 30 units in Austin. While the property had consistently been a reliable asset for Elizabeth, she recognized that significant renovations were required to maintain the quality of living for the residents and sustain the asset's value.
As she estimated the rehabilitation costs to reach up to $3.6 million ($120,000 per unit), Elizabeth found her solution in Fannie Mae's Reduced Occupancy Affordable Rehab (ROAR) loan. This program's terms were particularly appealing - not only did it cater specifically to MAH properties, but it also supported extensive renovations without the need for a construction loan.
Given the property's value of $5 million, the ROAR loan program's generous 'stabilized' LTV allowance of up to 90% was a perfect fit for Elizabeth. She was able to secure a loan of $4.5 million, enabling her to cover most of her rehabilitation costs.
During the rehab period, the ROAR loan's requirements proved to be accommodating. Elizabeth only had to maintain 50% occupancy and a DSCR of 1.00x, easing her financial and operational pressures. After the renovations, however, she was confident of achieving a 'stabilized' minimum DSCR of 1.15x, considering the enhanced quality and appeal of her property.
Elizabeth also found the ROAR loan's fixed-rate to be attractive as it provided predictability in her budgeting and financial planning. Moreover, the loan was structured to be interest-only during the rehabilitation period, offering her more financial flexibility.
With the ROAR loan, Elizabeth was able to execute her substantial rehabilitation project within 18 months without having to turn to a construction loan. This Fannie Mae financing program made her journey more straightforward, faster, and less stressful, ensuring the continued success of her MAH property.
This is a fictional case study provided for illustrative purposes.