Fannie-Mae Small-Balance Loans Explained [2025 Update]

Few financing tools punch above their weight in the multifamily market quite like Fannie Mae’s Small-Balance Loan (SBL). Capped at $9 million per property, the program still managed to place $4.7 billion during 2024, helping push overall multifamily production past $55 billion. For new investors or builders who plan to grow from duplexes into 20 to 50 unit communities, the SBL sits right in the sweet spot - large enough to matter, lean enough to close quickly.

What Makes an SBL Different?

• Speed. Delegated Underwriting & Servicing (DUS®) lenders receive authority to approve and securitize without full GSE committee review.

• Non-recourse structure. Carve-outs apply only for fraud and other “bad-act” triggers, shielding personal assets in normal operations.

• Flexible rate lock. Commitments from 30 to 180 days with a streamlined option that lets borrowers pin a coupon as soon as the application file is complete.

• Assumability. New owners may step into the note for a 1% fee - an attractive selling point during rate up-cycles.

Core 2025 Term-Sheet Metrics

Metric	SBL 2025	Conventional DUS*	Comment
Loan size	$1M-$9M	$3M+	Lower floor welcomes small sponsors
Term	5-30 yr	5-30 yr	Same seasoning, fewer reports
Max LTV	80%	75%	Leverage bump offsets tighter equity markets
Min DSCR	1.25x	1.25x-1.30x	Uniform across markets
Amortization	≤ 30 yr	≤ 30 yr	Interest-only periods negotiable
Recourse	Limited	Limited	No change

*Typical agency execution for loans above SBL cap.

2024-25 Performance Snapshot

• Small loans claimed 8.5% of total Fannie Mae multifamily production last year.

• Green SBL originations doubled year-on-year, mirroring a 101% surge in overall Green Financing.

• Coupon range (Aug 7 2025): 5-yr fixed: 5.64%-6.50%; 10-yr fixed: 5.84%-6.71%

Even with Treasury yields crossing 4%, these spreads remain thinner than many regional-bank options, particularly after banks tightened credit boxes in late-2024.

Why Sponsors Still Lean on SBL in 2025

• Cap-rate pressure favors smaller deals. Private buyers hunting for yield have rotated into secondary metros where assets price between $2 million and $15 million.

• Supply-side cost inflation. Rising insurance and payroll costs squeeze debt-service margins; the program’s 30-year amortization softens that hit.

• Capital-stack simplicity. Non-recourse senior debt leaves room for pref-equity or Property Assessed Clean Energy (PACE) layers without bank intercreditor wrangling.

Five-Step Play Sequence for a First-Time Borrower

1. Select a DUS lender steeped in small-loan production; ask for historical closing counts, not just allocations.

2. Order third-party reports, environmental screening, appraisal, and limited-scope property condition - immediately after term-sheet acceptance.

3. Deliver trailing-12 financials plus a current rent roll; avoid surprises by reconciling utility reimbursements before submission.

4. Lock the rate once underwriting clears DSCR and LTV hurdles; many lenders allow a partial good-faith deposit until closing.

5. Close and board; Fannie Mae securitizes each SBL as a single-asset deal, giving transparency on secondary-market pricing should an early sale arise.

Underwriting Themes Worth Watching

• Expense trending. The guide now stresses forward-looking payroll and insurance projections instead of straight-line historical averages.

• Green incentives. Borrowers committing to at least 30% whole-property energy savings may earn pricing rebates, but must deliver verified data inside 12 months.

• Refinance path. A Choice Refinance option launched in mid-2025 pares documentation for seasoned SBLs with strong payment histories.

Common Pitfalls

• Prepayment math. A declining-premium schedule often looks lenient at first glance, yet many sponsors forget to add an 11-day treasury yield maintenance window if they exit mid-cycle.

• Deferred maintenance. Minor roof or parking-lot items may slide past inspection, yet any life-safety flag can stall closing for weeks.

• Entity structure. Keep the borrowing single-purpose; throw-back to a mixed-use parent LLC will trigger new legal review.

Outlook Through Late-2025

FHFA raised multifamily purchase caps to $73 billion per GSE for 2025, keeping ample headroom for additional SBL flow. Slowing rent growth tempers valuations, yet migration toward Sunbelt and Mountain West metros still supports occupancy near 94%. As long as that floor holds, and with rates expected to hover in the mid-6% range - SBL execution should remain a favored bridge from smaller private-bank notes to true institutional capital.

For developers stepping beyond duplexes, or investors trading single-family rentals for professionally managed apartments, the SBL offers a rare mix of scale, speed, and borrower-friendly rules. Study the term sheet, partner with a seasoned DUS lender, and keep your rent roll tight; that trio will position any rising sponsor to secure agency backing even in today’s choppy capital markets.

Credit: (Fannie Mae, Select Commercial Funding, FHFA)

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