Fannie Mae Small Loans for apartment buildings

Where Small Loans fit in the small-balance market

Most apartment loans in the United States are small. Under HMDA, 64.3% of 2025 multifamily originations were on 5 to 24 unit buildings². The median loan on those buildings: $725,000 median loan on 5-24 unit properties². Banks and credit unions make most of those loans with a personal guarantee and a balloon. Fannie Mae Small Loans are the main way to put a non-recourse, agency-priced loan on a small building.

The 2026 change at Freddie Mac made this program more important. Freddie’s replacement for its Small Balance Loan program, Conventional Small, starts at generally a $2 million floor³. Below that, Fannie Mae Small Loans are the only agency option.

Loan size	Agency option	Typical alternatives
Below Freddie Mac’s floor	Fannie Mae Small Loans only	Bank, credit union, DSCR loan
Freddie’s floor to Fannie’s cap	Fannie Mae Small Loans or Freddie Mac Conventional Small	Bank, credit union, life company at low leverage
Above Fannie’s cap	Fannie Mae DUS or Freddie Mac Optigo	Life company, CMBS, bank

Fannie Mae’s cap is up to $9 million nationwide¹; Freddie Mac’s range is generally $2 million to $10 million³.

Sizing example (illustration)

An illustration, not a quote: a stabilized 32-unit building worth $5,000,000 with $340,000 of underwritten net operating income, at an illustrative 6.60% note rate on a 30-year amortization.

Test	Arithmetic	Loan it allows
Loan-to-value	$5,000,000 x 80%	$4,000,000
Debt coverage	$340,000 / 1.25 = $272,000 of annual debt service; divided by the 7.66% loan constant	$3,549,000
Loan	lower of the two	$3,549,000 (71% LTV)

Coverage binds, as it does on most small buildings priced at today’s rates. Two adjustments often shrink the NOI before the math starts, and they matter more on small buildings than large ones:

• Management fee. Lenders underwrite a market management fee even when the owner self-manages. On a building with no payroll line, that one entry can take several percent off NOI.
• Replacement reserves and real expenses. Lenders replace a seller’s thin expense history with actual tax bills, current insurance quotes and a per-unit reserve. Older buildings with recent insurance increases feel this most.

Rerun the example with your own figures in the DSCR calculator.

What the streamlined process saves, and what it does not

The program’s main cost advantage is the report package: Streamlined inspection and environmental screening (ASTM E-1528-14) instead of full reports¹. On a small loan, report costs are a large share of total closing costs, so this is real money.

What it does not change:

• An appraisal is still required, and its value sets the loan-to-value test.
• The borrower is still a single-asset entity, and key principals sign the carve-out guaranty and pass the same credit, background and prior-default checks as on a large loan.
• Reserves, tax and insurance escrows still apply.
• Closing still runs on agency loan documents, which are longer than a bank note. Budget for borrower counsel; see the closing costs calculator.

Prepayment on a small loan

Small-loan borrowers sell or refinance earlier than institutional owners, so the prepayment structure matters more here. Yield maintenance on fixed-rate loans; declining prepayment premium on variable-rate loans⁴. A declining schedule such as 5-year: 5-4-3-2-1 (percent by loan year), no lockout⁵ or 10-year: 5-5-4-4-3-3-2-2-1-1, no lockout⁵ keeps the exit cost predictable. Yield maintenance can be far larger if rates fall after you lock; the prepayment calculator shows the gap on your loan.

Fannie Mae Small Loan or a bank loan?

Question	Fannie Mae Small Loan	Typical community bank loan
Personal guarantee	Carve-outs only	Usually full
Rate period	Long fixed terms available	Often fixed for a shorter period, then a balloon or reset
Prepayment	Yield maintenance or declining schedule	Often lighter, negotiable
Reports and legal	Streamlined, but agency documents	Lighter, bank’s own forms
Commercial space	Limited	More flexible
Relationship	Loan sold to Fannie Mae, serviced by the lender	Bank keeps the loan; deposits often expected

Pick the Fannie Mae loan when you plan a long hold and want no personal recourse. Pick the bank when the building is unusual, the hold is short, or the deposit relationship buys you a better rate. The full comparison is on agency vs bank loans.

Deal killers on small buildings

• Unpermitted or illegal units counted in the rent roll. The appraiser and the lender will exclude them, and their income with them.
• Rents collected in cash with no bank deposit trail.
• Commercial or non-residential space that carries too much of the income for an apartment loan.
• A property manager who is also the seller and leaves at closing, taking the operating history with them.
• Title and zoning gaps: a building that is legally nonconforming with no rebuild letter can stall at the lender’s legal review.