When you’re building a multifamily portfolio, the financing you choose can make or break your long-term returns. Many investors start out with their local or regional banks, and for good reason—relationships, flexibility, and speed are all compelling. But as deals get bigger and the stakes rise, agency debt (loans backed by Fannie Mae, Freddie Mac, or HUD) often becomes the financing of choice.
So, what exactly makes agency financing so powerful compared to traditional bank loans? And why do some investors still swear by their regional lenders? Let’s break it down.
The Big Advantages of Agency Debt
1. Lower Interest Rates
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs). That means they borrow at extremely low rates and pass those savings along to borrowers. Compared to regional or community banks, agency loans often come in 25–75 basis points cheaper, which compounds massively over a 5–10 year hold period.
For example, on a $10M loan, even a 0.50% rate difference could mean hundreds of thousands of dollars in saved interest over the life of the loan.
2. Longer Fixed Terms - Predictable Amortization
Regional banks typically offer 5–7 year terms with balloon payments at maturity. That means you’re forced back into the market, refinancing every few years—exposing yourself to interest rate risk, credit tightening, and market downturns.
Agencies, on the other hand, commonly provide 10-, 12-, or even 30-year fixed rates with amortization schedules to match. Some loans even come with interest-only periods, boosting cash flow early in the investment’s life. For investors who want stability and predictability, that’s a huge win.
3. Non-Recourse Protection
One of the most attractive features of agency debt is that it’s typically non-recourse. As long as you avoid “bad boy” carveouts (fraud, willful misconduct, etc.), your personal assets aren’t at risk if the property underperforms.
Regional banks, however, often demand recourse loans, tying your personal balance sheet directly to the property. For an investor looking to grow and scale, removing that personal liability is a game-changer.
4. Higher Leverage - Supplemental Loans
Agency lenders regularly go up to 75–80% loan-to-value (LTV) for stabilized multifamily, and sometimes even higher when affordable housing is involved.
What’s more, Fannie and Freddie both offer supplemental loans—essentially a second loan you can layer on top of your existing agency debt once the property has seasoned. That flexibility lets investors tap into appreciation and increase leverage without refinancing the first mortgage.
By contrast, regional banks are often more conservative with leverage and have fewer options for pulling out equity later without a full refinance.
5. Prepayment Flexibility - Assumability
At first glance, agency loans might seem restrictive with yield maintenance or defeasance penalties. But here’s the hidden benefit: assumability.
If you sell during a rising-rate environment, your buyer can step into your favorable loan terms. That can make your property far more attractive and even command a pricing premium.
Regional banks usually don’t allow loan assumptions—you sell, you pay off the loan. That limits your exit strategies.
6. Standardization - Scalability
Because Fannie and Freddie specialize in multifamily, their underwriting and loan products are highly standardized. That makes the process repeatable once you’ve closed a few deals with them.
Regional banks, however, vary widely by institution. Loan committees may apply subjective criteria, and terms can shift based on relationships or local market sentiment.
For investors looking to scale from a few buildings into a full portfolio, the consistency of agency financing is invaluable.
Why Investors Still Like Regional Banks
With all these advantages, you might wonder why anyone still works with their local or regional bank. The truth is, regional lenders fill important gaps that agencies often won’t touch. Here are the key reasons investors stick with them:
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Flexibility for Value-Add Deals: Agencies want stabilized, cash-flowing properties. Regional banks often finance properties with high vacancy, deferred maintenance, or a heavy renovation plan.
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Speed and Simplicity: Smaller deals under $1–2M can be approved quickly with less paperwork. Some banks can close in weeks, while agency processes tend to be more involved.
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Relationship-Based Lending: A long-standing relationship with a banker can be invaluable. In tough times, that banker might advocate for you at the credit committee, grant temporary relief, or extend favorable terms based on trust.
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Simpler Structures: Not every investor wants to deal with prepayment penalties, yield maintenance, or supplemental loan programs. Some prefer the straightforward terms of a bank loan—especially for short holds.
At Ellsbury Group: What You Need to Know
Choosing the right financing isn’t just about securing the lowest interest rate—it’s about aligning the loan structure with your investment strategy. Agency debt offers unmatched advantages in cost, stability, and scalability for multifamily investors, but regional banks still play an important role.
If your goal is to grow your portfolio while protecting your personal balance sheet, agency financing is often the clear winner. However, if you need speed, flexibility, or relationship-driven support, your regional banker may be the better choice.
The real power lies in knowing when and how to use both.
Ready to take your multifamily investment strategy to the next level? Contact Ellsbury Group today to explore the financing solutions that fit your goals and maximize your returns.
