Real Estate Term of the Day – Tandem Loan
A tandem loan refers to a pair of loans taken out on a single asset. They typically get attached to large assets, including single-family homes or commercial real estate that uses multiple sources of funding in the course of the asset’s life. Tandem loans can make financial sense in cases where a single loan equal in size to a tandem loan would generate additional fees or expenses. Alternatively, if the amount a prospective buyer must finance to purchase a loan exceeds the amount available via a conventional loan, the borrower might use tandem loans to avoid the expenses associated with a jumbo loan.
These tandem loans should not be confused with tandem plans, which allowed the GNMA to purchase mortgages for non-profit public housing at discounted prices. GNMA could then resell the mortgages through Fannie Mae and Freddie Mac, subsidizing low-interest rate loans for home buyers who would not otherwise be able to afford them.