Fannie Mae vs Freddie Mac: which agency loan fits your building

How to read the table

The two headline numbers match: Fannie Mae small loans go to 80% max LTV with 1.25x min DSCR, and Freddie Mac tests 1.25x minimum amortizing DCR. If you stop there, you will conclude the agencies are interchangeable. They are not. The differences live in four places: the size floor, how leverage changes with the term, which buildings each agency will finance, and how the prepayment premium is calculated.

Size floor. Freddie Mac’s Conventional Small product is generally $2 million to $10 million³. Fannie Mae small loans run up to $9 million nationwide¹. Non-recourse available for most loans above $750,000⁴, per Fannie’s recourse terms. So a loan of, say, $1,400,000 on a 14-unit building is a Fannie Mae or bank conversation, not a Freddie one.

Term and leverage. Freddie steps leverage down on short terms: 80% (7-year+ terms); 75% (5 to under 7 years)³. Fannie’s small loan term sheet shows one maximum. If you want a 5-year fixed rate because you plan to sell, that one rule can move your loan amount more than any rate difference between the two.

Property scope. Fannie Mae’s small loan sheet covers this: Existing stabilized conventional, affordable and MHC properties with 5+ units¹. Freddie’s Conventional Small sheet is narrower: Excludes student, seniors, MHC and co-op properties; no hard subordinate debt³. A small manufactured housing community therefore belongs at Fannie Mae, or at Freddie’s separate MHC program, whose sheet reads: minimum 5 pad sites; loans of $1 million or more⁵.

Long fixed terms. Freddie offers 5, 7, 10, 12 or 15-year fixed terms³. Few small-loan programs fix the rate that long, and the longest terms suit an owner who wants to refinance once in a generation.

Worked deal: one building, priced both ways

Illustration. A 30-unit building appraises at $7,000,000 and underwrites to $520,000 of NOI. The owner wants a 5-year fixed rate because a sale is likely in year four or five. Assume both lenders quote 6.00% with 30-year amortization, so the rate is not what separates them.

Test (illustration)	Fannie Mae small loan	Freddie Mac Conventional Small
LTV limit on a 5-year term	80% of $7,000,000 = $5,600,000	75% of $7,000,000 = $5,250,000
1.25x coverage at 6.00%, 30-year amortization	about $5,782,000	about $5,782,000
Loan offered (lower of the two)	$5,600,000	$5,250,000
Annual debt service	about $402,900	about $377,700
Coverage on the offered loan	about 1.29x	about 1.38x

Fannie Mae lends $350,000 more on the same building, because Freddie’s leverage limit on a short term binds before coverage does. Stretch the term to 7 years or longer and Freddie’s limit rises to the same 80%, and the two offers converge.

Now price the exit. Suppose the owner sells with $5,000,000 outstanding, 84 months of yield maintenance left, a 6.00% note and a 4.25% Treasury yield. Both formulas pay the lender the present value of the lost spread, but they discount differently: Freddie Mac discounts the rate differential monthly (Fannie Mae's Form 6104.01 discounts annually)⁶.

Prepayment premium (illustration)	Method	Premium
Fannie Mae style	YM = principal prepaid x (note rate minus Treasury yield) x [1 - (1 + r)^(-n/12)] / r, with r the Treasury yield and n the months left	about $520,000
Freddie Mac style	Monthly spread of 1.75%/12 on $5,000,000, discounted monthly at 4.25%/12	about $529,000

The gap is small next to the premium itself, which is more than 10% of the balance. The real lesson is that a short-hold owner should ask both lenders for a declining premium. Fannie publishes one: 5-year: 5-4-3-2-1 (percent by loan year), no lockout⁸. Freddie’s sheet says only this: Step-down and yield maintenance without defeasance are available on Conventional Small for an added cost³. It does not print the percentages, so ask for them in writing.

The costs people miss

• Freddie’s default exit is not yield maintenance for the whole term. The structure: Yield maintenance until securitization, 2-year lockout, then defeasance; open final 90 days³. Once a loan is securitized, a payoff during the defeasance period means buying Treasuries to replace the cash flows, plus defeasance consultant, counsel and servicer fees.
• Actual/360 interest. Actual/360 is standard on Freddie Mac Conventional Small; 30/360 is available³. On the same quoted rate, Actual/360 costs slightly more per year than 30/360 because a year has 365 days of interest at 1/360 each.
• The 1% floor. Fannie Mae’s yield maintenance carries a minimum premium of 1% of the balance⁹. Even after rates rise, leaving early still costs that minimum.
• Supplemental loans. Both agencies offer a second loan later. Fannie’s is available 12 months after the senior loan closes¹⁰. Freddie’s is at least 12 months after the first loan; not in its last 3 years¹¹. Freddie Conventional Small itself bars hard subordinate debt, so plan any future second loan inside the agency program, not with a third party.
• Interest-only costs leverage at Freddie. The Conventional Small sheet sets the limits: Full-term interest-only: 65% LTV (7 years or less), 70% (over 7 years)³. If you want interest-only and full proceeds together, a partial interest-only period is the usual compromise.

Edge cases that decide the choice

Your deal	Lean toward	Why
Loan below Freddie’s floor	Fannie Mae small loan	Freddie’s floor: generally a $2 million floor
Loan between Fannie’s small ceiling and Freddie’s	Freddie Conventional Small	Fannie small loans run up to $9 million nationwide; above that the loan moves to standard DUS
Manufactured housing community, small	Fannie Mae	Freddie’s small sheet excludes MHC
5-year term, full leverage	Fannie Mae	Freddie caps short terms at 75% max LTV (5 to under 7-year terms)
15-year fixed rate	Freddie Mac	5, 7, 10, 12 or 15-year fixed terms
Refinance with modest cash flow and low leverage	Freddie Mac	No refinance test at 1.40x amortizing DCR or higher and 60% LTV or lower
Occupancy just reached the threshold	Either, carefully	DUS term sheet: Stabilized occupancy, typically 90% for 90 days before funding

If the loan is above both small-loan ceilings, the comparison becomes Fannie DUS against Freddie Optigo conventional. The same pattern holds there: Freddie’s conventional loans start at a $10 million minimum, and its leverage again depends on term (80% max LTV (7-year+), 75% (5 to under 7 years)).

Want both agencies quoted on your building at once? Send the rent roll and trailing twelve months through the form and we will run it through lenders on each platform.