Refinance a bridge loan into agency debt

The decision

You are choosing when to leave the bridge and which permanent lender takes you out. Leave too early and the agency sizes the loan on income that is not yet stable. Leave too late and you pay extension fees, a new rate cap and bridge interest while rates move. The tests below tell you when you are ready.

The tests each takeout applies

Test	Fannie Mae	Freddie Mac	FHA 223(f)
Occupancy	Stabilized occupancy, typically 90% for 90 days before funding1	Set in underwriting	Stable occupancy of at least 85%2
Coverage	1.25x min DSCR3 (conventional)	1.25x min DCR4 (conventional fixed)	1.15x DSCR5 (market rate)
Leverage	80% max LTV3	80% max LTV (7-year+), 75% (5 to under 7 years)4	87% LTV5 (market rate)
Property age	No fixed rule	No fixed rule	Certificates of occupancy issued 3 or more years before application (newer properties need 1 month at the program DSCR)2
Recourse	Non-recourse available for most loans above $750,0003	Non-recourse except standard carve-outs6 (Conventional Small)	Non-recourse, with carve-outs for bad acts2

Freddie Mac tests DCR on interest-only loans using an amortizing payment, not the interest-only payment⁶, so asking for interest-only does not raise the loan amount there. It does waive its refinance test outright in one case: No refinance test at 1.40x amortizing DCR or higher and 60% LTV or lower⁶.

Worked example: sizing the takeout

Illustration. A 96-unit property owes $8,000,000 on a bridge loan after renovation. Stabilized NOI is $640,000. The appraiser uses an illustrative 5.75% cap rate, for a value near $11,130,000.

Takeout (illustration)	Maximum loan	Against the $8,000,000 bridge
80% of value	about $8,904,000	Covers it
Agency, 1.25x at 6.25%, 30-year amortization	about $6,930,000	Short about $1,070,000
Agency, 1.25x at 6.75%	about $6,578,000	Short about $1,422,000
FHA-style, 1.15x at 6.50% all-in, 35-year amortization	about $7,676,000	Short about $324,000

Value is not the problem here; coverage is. Every $10,000 of extra NOI adds about $108,000 of agency loan at 6.25%, so another $99,000 of NOI would close the gap, which is a lot to find. The FHA-style row shows why some sponsors take the slower HUD route: a lower coverage test and longer amortization buy most of the gap back. The FHA rate here is an illustration that includes the annual insurance premium of 0.25% (25 basis points) per year⁷.

Run the test on your own numbers with the refinance gap calculator.

Ways to close a takeout gap, ranked by cost

1. Wait for NOI, if the bridge allows it. Cheapest if extension terms are reasonable. Price the extension fee and the replacement rate cap first.
2. Bring cash at closing. Equity you already have costs nothing new.
3. Take a different takeout. FHA 223(f) sizes higher on coverage-bound deals; a bank may size on a shorter schedule but lend more on a relationship.
4. Green Rewards on a Fannie Mae loan. Fannie Mae offers up to 5% more loan proceeds than a non-green DUS loan⁸, if the property can meet the savings test.
5. Preferred equity or a partner. Expensive, and it must be resolved before closing on loans that bar subordinate debt, such as Freddie Mac Conventional Small: Excludes student, seniors, MHC and co-op properties; no hard subordinate debt⁶.

Timeline: from stabilization to payoff

Step	What happens
Occupancy reaches the program level	Start trailing statements that show it; avoid heavy concessions that the lender will underwrite out
Choose the takeout lender and apply	Agency lender orders appraisal, condition report and Phase I
Rate lock	Index lock or full rate lock; deposit posted
Underwriting and commitment	Lender confirms NOI, sponsor and property tests
Closing	Agency loan repays the bridge; any exit fee and the rate cap are settled

Freddie Mac conventional fixed-rate loans: Early rate lock typically 60 to 120 days until purchase; Index Lock available⁴. For a sense of where rates sit, the 10-year Treasury was 4.94% (October 30, 2026)⁹, and agency capacity is not the constraint this year: FHFA set caps of $88 billion each for Fannie Mae and Freddie Mac (2026)¹⁰.

Documents the takeout lender will ask for

• Trailing monthly operating statements since stabilization, and a current rent roll with concessions shown.
• Renovation completion evidence: final draw, certificates of occupancy if any, and photos.
• Bridge loan payoff letter and any exit fee or minimum interest terms.
• Sponsor financial statement, schedule of real estate owned and liquidity.
• Organizational documents for a single-purpose borrower.

Pitfalls

1. Minimum interest and exit fees on the bridge. Read them at bridge closing; they change the best date to refinance.
2. Concession-driven occupancy. Agencies underwrite effective rent, not asking rent.
3. Locking before the rent roll supports the loan. A lock with a deposit you may forfeit is worse than a later lock.
4. Forgetting the rate cap. Bridge loans that require a replacement cap at extension add a cost that can decide the timing.
5. Assuming the bridge lender’s value is the agency’s value. The agency lender’s appraiser starts fresh.