Fannie Mae Small Mortgage Loans for 5+ Unit Apartments Fannie Mae Small Mortgage Loans for 5+ Unit Apartments

By Multi-Family USA Editorial Team · Reviewed by Josh Bauerle · Published 2026-10-07 · Updated 2026-10-08 · 12 min read

What are Fannie Mae Small Mortgage Loans?

Fannie Mae Small Mortgage Loans are long-term, mostly fixed-rate mortgages on existing apartment buildings with five or more units, with an original loan amount of $9 million or less. They are delivered through Fannie Mae’s Delegated Underwriting and Servicing (DUS) lender network, not by Fannie Mae directly, and they use a streamlined underwriting path built for smaller deals. Fannie Mae’s Multifamily Guide defines the product in Section 901: a Small Mortgage Loan is a mortgage loan with an original amount less than or equal to $9 million, and it may be underwritten under the dedicated Small Loan chapter or under the standard conventional rules.

For a sponsor with a 12-unit to 80-unit building, that matters. Standard agency execution has historically been priced and processed with larger assets in mind. The small loan path keeps agency features that smaller owners rarely find elsewhere: 30-year amortization, long fixed terms, non-recourse structure and assumability.

If you are earlier in the process, start with our overview of agency stabilized loans and the five-plus-unit financing basics. This page goes deep on the under-$9 million segment.

A note on sourcing. The terms below follow two documents: Fannie Mae’s published Multifamily Guide (Part III, Chapter 9: Small Mortgage Loans) and the Fannie Mae Small Loan term sheet as republished by DUS lender Lument. Lenders can add overlays, so treat every number as a starting point and confirm it in a written quote.

Fannie Mae small loan terms at a glance

Two rows deserve a closer read. First, fees and timeline are intentionally blank in the program materials. They depend on the lender, the market and how clean your file is. We do not publish a typical number we cannot source, so ask each lender for its fee schedule and a dated closing timeline in writing.

Sponsors building toward a small portfolio often start here; see the small portfolio operator playbook. Existing agency borrowers can also tap equity through a supplemental loan. Garden-style communities are a common fit; see garden-style multifamily financing.

Second, the Guide separately requires several non-negotiables. A Key Principal must sign a Non-Recourse Guaranty (Section 902). The lender must run a Fannie Mae-style income analysis and a property inspection. The term sheet also describes streamlined third-party reports, with an environmental screening under ASTM E-1528-14, rather than the full package that larger loans carry.

How lenders size a Fannie Mae small loan

Proceeds are the lowest of the loan amounts that each test allows. In practice that means the LTV test (80% of the appraised value, per the term sheet) and the DSCR test (a minimum 1.25x) run side by side, and the lower result wins.

Underwritten net cash flow, not your P&L

Fannie Mae’s Guide builds underwritten NCF in a fixed order. Per Section 905.01, lenders deduct a property management fee equal to the greatest of 3% of effective gross income, the actual fee (excluding any portion subordinated to the loan, and including known contractual increases over the next 24 months), or the appraiser’s concluded market fee. Replacement reserves are then deducted at the greatest of $200 per unit if the property condition rating is 1, $250 per unit if it is 2, $300 per unit if it is 3, or the amount required under the Guide’s reserve rules.

That has direct consequences for a self-managed building. If you do not pay yourself a fee, the lender will still charge the property at least 3% of effective gross income. Reserves reduce cash flow too, even when you have not spent a dollar on them. The NOI normalization guide walks through the other adjustments lenders make, and the cap rate and NOI calculator lets you test your own numbers.

The DSCR test

DSCR is underwritten NCF divided by annual debt service. At a 1.25x minimum, you need $1.25 of underwritten NCF for each $1.00 of principal and interest. Because debt service rises with the interest rate, the DSCR test is what tightens first when rates move. Our commercial DSCR explainer covers the mechanics, and the DSCR calculator shows how a rate change moves the maximum loan.

The LTV test

The term sheet caps leverage at 80% of value. Value is a lender-ordered appraisal, so a contract price above the appraisal does not increase proceeds. The debt yield and LTV framework explains why lenders also look at NOI against loan size, and the debt yield calculator lets you check that ratio before you apply.

To run all of these constraints at once, use the loan sizing calculator. For a payment-first view, the multifamily mortgage calculator estimates principal, interest and amortization on a given loan amount.

Worked example (hypothetical numbers)

The figures below are round, invented numbers for a 40-unit building. They show how the tests interact. They are not a quote, a market rate or a real transaction.

In this example the DSCR test sets the loan at roughly $3.14 million, which is about 68% of value, and the 80% LTV test would have allowed more. Debt yield on that loan is about 9.6% ($300,000 divided by $3.14 million). The sponsor would need roughly $1.46 million of equity for a purchase at the appraised value, before closing costs and reserves.

Now stress the rate. Holding everything else constant, a 6.0% rate lifts the DSCR-based maximum to about $3.22 million, while a 7.0% rate cuts it to about $2.91 million. That swing of roughly $300,000 comes from the rate alone. If your plan needs the full 80%, the lever is usually NOI, not the lender.

For variable-rate options, the index matters as much as the spread. Many variable structures reference the Secured Overnight Financing Rate, which the Federal Reserve Bank of New York publishes each business day. Confirm the actual index, caps and reset terms in your term sheet.

Who the Fannie Mae small loan fits

This program tends to work well when most of the following are true.

• The building has five or more units and is stabilized, with a rent roll that matches your trailing financials.
• Your loan amount is $9 million or less, and ideally large enough that the lender’s minimum and fixed costs do not swamp the benefit.
• You plan to hold for five years or longer and value a long fixed rate and non-recourse protection.
• The property is a conventional apartment building, an affordable property that qualifies under the Guide, a market-rate cooperative or a manufactured housing community.
• You can show net operating income that survives the lender’s expense and reserve adjustments with at least 1.25x coverage.
• You are comfortable with a prepayment premium, whether yield maintenance or a declining schedule, and you have modeled it with the yield maintenance calculator.

Who it does not fit

• Transitional buildings. Lease-up, heavy renovation and sharply below-market occupancy usually belong in bridge or value-add financing, followed by an agency refinance once stabilized.
• Very short holds. If you expect to sell or refinance in two to three years, prepayment costs can outweigh the rate advantage.
• Thin cash flow. If underwritten NCF does not clear 1.25x at the going rate, proceeds shrink. A lower-leverage structure or a different lender type may fit better.
• Sponsors who need recourse flexibility. The program is non-recourse with carve-outs, but principals still sign the carve-out guaranty. Confirm your comfort with that before you apply.
• Under 5 units. One-to-four unit rentals are residential investment property, which this site does not cover. See DSCR Authority for that segment.

How it compares to Freddie Mac Conventional Small and HUD

Freddie Mac Optigo Conventional Small. Freddie Mac retired its Small Balance Loan (SBL) on April 15, 2026 and replaced it with Optigo Conventional Small. The new program generally covers $2 million to $10 million on 5 to 50 units, with up to 75% or 80% LTV depending on the term and a 1.25x minimum amortizing DCR. Fannie Mae’s small loans reach below Freddie Mac’s $2 million floor, with loans as low as $1 million, and cap at $9 million. See our Freddie Mac Optigo Conventional Small page for the full terms and our Freddie Mac Optigo page for the larger-loan program.

HUD/FHA. HUD-insured loans can offer higher leverage and long, fully amortizing terms on qualifying properties, but the process is slower and more documentation-heavy. The HUD and FHA multifamily page and the FHA versus agency comparison explain when the trade-off pays off.

Agency capacity in 2026. Fannie Mae and Freddie Mac each operate under an annual multifamily volume cap set by the Federal Housing Finance Agency. On November 24, 2025, FHFA set the 2026 caps at $88 billion for each enterprise, required that at least 50 percent of each enterprise’s multifamily business be mission-driven affordable housing, and excluded loans financing workforce housing from the limits. For a borrower, the practical point is that lenders can price and allocate capacity differently as the year progresses, so quote early and compare more than one agency.

Step-by-step: how to get a quote

1. Normalize your NOI. Build a trailing 12-month income statement and current rent roll. Apply the lender-style adjustments (3% management fee minimum, per-unit reserves) so your numbers match theirs.
2. Test the loan. Run sizing at 1.25x DSCR and 80% LTV, then at a slightly higher rate. Check debt yield too. Use the loan sizing calculator.
3. Check closing costs. Estimate lender, legal and third-party fees with the closing cost calculator.
4. See where rates are. Our rates page tracks current market context. Coupons move daily, so use it for direction, not for a quote.
5. Pick a term and prepayment structure. Compare yield maintenance against a declining premium for your expected hold.
6. Get a deal review. Send the scenario through our deal review form and our US desk can match it with lenders that actively write small agency loans. Allow for the lender’s own timeline: commitments are available for 30 to 180 days once you are ready to lock.

Common reasons small loans get repriced or declined

• Occupancy below what the lender requires for a stabilized property.
• Underwritten NCF well below the borrower’s stated NOI after expense and reserve adjustments.
• Deferred maintenance that lifts the property condition rating, and the reserve with it.
• A sponsor whose net worth, liquidity or real estate experience falls short of the lender’s standard.
• A purchase price above appraised value, leaving a larger equity check than planned.
• Commercial space or short-term rental income that the lender discounts or excludes.

The best defense is a clean package. Our multifamily close checklist lists what lenders ask for.

Related loan programs

Compare this with Freddie Mac Optigo Conventional Small and HUD 223(f) loans, which cover other financing routes for 5+ unit buildings.

What this page does not do

Multi-Family USA is a lender-matching service operated by LendCity America. It does not originate loans, and nothing here is a commitment or a rate quote. Program terms change, and individual lenders add overlays, so verify every figure in a current written term sheet. This content is educational and should be combined with advice from your financing, legal, tax and accounting professionals.

Frequently asked questions