Government-sponsored enterprises (GSEs) play an important role in the U.S. housing finance system. Fannie Mae and Freddie Mac purchase qualifying mortgages from approved lenders, providing liquidity that helps support the availability of residential mortgage credit.
Although GSE-backed loans can be an attractive option for investors who meet the applicable requirements, they are not designed to accommodate every rental-property strategy. Investors building larger portfolios may eventually need financing that offers greater flexibility around property count, borrower structure, underwriting, and collateral.
Understanding the differences between agency and private financing can help investors choose the structure that best supports their portfolios.
Fannie Mae and Freddie Mac are federally chartered, shareholder-owned corporations created to support liquidity in the housing finance market. Both have operated under the conservatorship of the Federal Housing Finance Agency since 2008. Learn more about the GSE conservatorships.
Fannie Mae and Freddie Mac generally do not originate mortgages directly for individual borrowers. Instead, approved lenders originate loans that may be sold to the GSEs when they meet the applicable eligibility, underwriting, documentation, and property requirements.
Qualifying investors may use conventional mortgages to purchase or refinance eligible investment properties. These loans can provide competitive rates and long amortization schedules, making them potentially attractive for investors with a limited number of properties.
Agency-style underwriting commonly considers factors such as:
Requirements vary by lender, transaction, and loan program.
Fannie Mae’s current Selling Guide permits a maximum of 10 financed properties when the subject transaction involves a second home or investment property processed through Desktop Underwriter. The calculation can include financed one- to four-unit residential properties on which the borrower is personally obligated, including the borrower’s financed primary residence. Review Fannie Mae’s financed-property guidance.
Reaching the maximum does not necessarily prevent an investor from owning additional real estate. It can, however, limit the investor’s ability to obtain another qualifying Fannie Mae loan for an investment property.
Agency guidelines can change, and individual lenders may apply additional requirements. Investors should confirm current eligibility with an approved mortgage professional rather than assume every financed property will be counted—or excluded—in the same way.
Freddie Mac and Fannie Mae previously participated in limited pilot programs intended to evaluate financing for larger single-family rental portfolios. CoreVest participated in Freddie Mac’s inaugural initiative, including a transaction involving Freddie Mac-backed financing for affordable single-family rentals.
Those pilots should not be viewed as current financing programs. In 2018, the FHFA announced that the GSEs would conclude their expanded SFR pilots and continue serving the market through their previously existing investment-property programs. Read the FHFA announcement.
Investors evaluating financing today should rely on current program guidelines rather than the eligibility requirements associated with those discontinued pilots.
Private business-purpose lenders can provide alternatives for investors whose portfolios or strategies do not align with conventional agency programs.
Private financing may be worth considering when an investor wants to:
Private loans may have different rates, fees, reserve requirements, prepayment provisions, and underwriting standards than agency-backed mortgages. Investors should compare the complete economics and obligations of each option.
ConsiderationAgency-Style Investment LoanPrivate Portfolio LoanTypical structureSeparate mortgage on an individual propertyMultiple properties or units under one loanPrimary underwriting focusBorrower income, credit, assets, liabilities, and propertyProperty or portfolio cash flow, collateral, sponsor strength, and experienceFinanced-property limitsProgram limits may applyDetermined by the lender and loan structureBorrower structureCommonly an individual borrowerMay accommodate eligible business entitiesCollateralUsually one propertyMay include properties across multiple marketsDocumentationGenerally follows standardized agency requirementsVaries by lender and transactionRecourseCommonly includes personal borrower liabilityRecourse and non-recourse structures may be availableBest suited forQualifying investors with smaller portfoliosInvestors seeking to consolidate or scale a portfolio
Neither option is universally better. The right financing structure depends on the investor’s objectives, portfolio size, credit profile, property cash flow, liquidity, and anticipated holding period.
A portfolio loan can combine several properties or units into one financing structure. This may simplify the investor’s debt structure while allowing the lender to evaluate the collective performance of the collateral.
Potential benefits may include:
Instead of maintaining separate mortgages with different lenders, payment dates, and maturity schedules, an investor may be able to finance multiple properties under one loan.
Private portfolio lenders may focus more heavily on rental income, operating expenses, debt service coverage, property values, and the overall strength of the portfolio.
That does not mean the borrower’s finances are irrelevant. Lenders may still review credit, liquidity, experience, contingent liabilities, and financial reserves.
Some lenders can include eligible properties located in different markets within the same loan. This may be useful for investors operating across multiple states or metropolitan areas.
Depending on the lender and transaction, investors may have access to different terms, amortization schedules, interest-rate structures, leverage levels, and recourse options.
Before selecting a lender or loan structure, investors should ask:
The lowest stated interest rate may not produce the best overall financing outcome. Investors should also consider proceeds, closing costs, prepayment terms, flexibility, execution risk, and the ability to support future growth.
CoreVest offers rental portfolio loans for investors seeking to finance five or more rental properties or units under one loan.
Program features include:
Terms and eligibility depend on the borrower, collateral, loan purpose, and underwriting.
GSE-backed financing may be a cost-effective option for qualifying investors with smaller portfolios. As investors acquire more properties or require financing that does not fit standardized agency guidelines, private business-purpose loans can provide another path.
The right choice should reflect more than the interest rate. Investors should evaluate the complete loan structure, qualification method, property-count limitations, collateral requirements, prepayment provisions, and long-term portfolio strategy.
CoreVest provides business-purpose financing for residential real estate investors at multiple stages of growth. Contact our team to discuss your rental portfolio, borrowing structure, and financing objectives.
Speak with a CoreVest loan specialist
This article is provided for informational purposes only and does not constitute legal, tax, investment, financial, or lending advice. GSE and lender requirements are subject to change and may vary by program, borrower, property, and transaction. All loans are subject to underwriting, credit approval, eligibility requirements, and applicable terms and conditions.
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