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Agency Loans vs Banks: Which is right for your deal?

Friday, November 17, 2017

Have you ever had to compare the difference between agency loans and traditional bank loans? 

Investors that have switched between the two will be the first to tell you, while it seems they are similar, the steps to get there make them worlds apart. 

The first thing one must understand is that Agency loans are mortgage bonds through government-supported agencies that guarantee mortgages. This makes the approval and regulation end of things all the more complex. 

Some of these agencies include Fannie Mae, Freddie Mac, or Ginnie Mae as well as many others. 

Most investors generally choose the lender type based on the location of the property. 

If you’re looking to stay local, Local banks can be more aggressive on deals in their vicinity, while agency loans will lend nationwide and generally have a much wider demographic. 

The closing process is often times simpler with local banks over agency loans. While local Banks primarily look at debt service, agency lenders look at debt yield and a detailed exit plan analysis as well. 

One of the biggest differentiators is that Agencies offer non-recourse and a higher LTV on loans. 

Generally, they carry a yield maintenance prepayment penalty, but in certain situations, a sliding scale penalty can be negotiated. 

What’s most important to note is that their sweet-spot is multi-family assets and certain projects which qualify as "green" projects and benefit from reduced pricing. 

So, keep in mind these are just some of the outlining factors taken in to account when choosing your next loan.  

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