- For borrowers who wish to take advantage of lower interest rates for short-term projects, the Freddie Mac Floating-Rate loan could e the ideal choice. It provides more flexibility than other loan programs while also keeping rates highly competitive.
- Those who obtain these loans will find that they offer options, including a prepayment provision option and interest rate cap coverage. They are versatile and can be designed to meet the specific needs of the borrower. These loans are available to multifamily borrowers.
Conventional Loan Highlights
Loan Amount: Most loans are between $5 million and $100 million, though other loan options (larger and smaller) may be available for some projects
Loan Terms: Choose from 5, 7, and 10-year loan terms
Amortization: Loan amortization can be as long as 30 years, with some interest-only options available to borrowers.
Interest Rate: A floating rate option is available. However, borrowers must purchase an interest rate cap (this is obtained through a third-party organization cap provider)
Eligible Borrowers: Only available to a single-purpose entity.
Maximum Loan to Value: 7-year terms or longer, 80 percent, for 5-year terms, 75 percent
Maximum DSCR: Typically, 1.00 at the maximum note rate, floaters must be sized at a fixed rate equivalent to 1.25x
Property Types: Designed for multifamily properties, with no availability for cooperatives
Escrow Requirements: Lenders typically require monthly deposits for tax and insurance escrows, though this may be waived depending on the circumstances of the loan.
Recourse: These loans are non-recourse loans with some exceptions for this, including misrepresentation and fraud.
Commercial Space Allowance: Properties cannot have more than 40 percent of the effective gross income coming from commercial space, and it cannot account for more than 40 percent of the total square footage of the property.
Necessary Reports: This typically includes Property condition Assessment and Phase 1, appraisal, environmental, zoning, insect, and flood.
Assumable: Yes, subject to the approval of the borrower and 1 percent fee
Rate Lock: Early rate lock is available for various durations, which could range from 60 to 120 days until the purchase.
Application Deposit: Typically, $26,500, which will cover all underwriting costs, including the necessary application fee.
Good Faith Deposit: Required 2 percent of the loan over $5 million due at rate lock for those who want early rate locks transactions. This amount is refundable after the closing or the purchase of the property through Freddie Mac.
Advantages of Freddie Mac Floating-Rate Loans
- Interest Rates: Highly competitive interest rates, including some of the best options across all loan types for multifamily properties.
- Non-recourse loans: a safer bet for many investors looking for a solid solution with less risk overall.
- Mixed Use: It is possible to use these loans for mixed-use properties, with some limitations (no more than 40 percent of the property can be used for commercial use)
- Bridge Loans: A solid solution for a bridge loan for many because the Freddie Mac Multifamily Floating-Rate offers short terms.
Disadvantages of Freddie Mac Floating-Rate Loans
- Approval Process: The property will require the Phase I Environmental Assessment, Appraisal, Physical needs assessment, as well as a full seismic report in some areas. This can take some time and can be limiting for some locations.
- Origination Fees: Typically, there is a loan origination fee associated with these loans.
- Legal Fees: Borrowers may have to pay as much as $12,000 in legal fees associated with obtaining this loan.
There is typically a 2 percent rate lock fee that is necessary upfront, though this can be refunded if the loan goes through, which is about 30 days after the closing period.
- Reserves Required: These loans typically require replacement reserves, which could be limiting to some borrowers.
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What Are Freddie Mac Floating-Rate Loans?The Freddie Mac Floating Rate Loan program is designed for those who are looking for $5 to $100 million (though smaller loans are available for multifamily properties. These loans are specifically noted for their very low-interest rates, which are typically some of the most affordable available anywhere. Because they offer short-term solutions, these are also excellent solutions for those looking for short-term loans like a bridge loan.
These loans are often best used for standard multifamily housing properties as well as manufactured housing communities. They can also be used for senior housing developments. Borrowers may also use these loans for Targeted Affordable Housing properties, such as cash LIHTC years 4-10 and 11-15, as well as Section 8 housing. These loans are not allowed to be used for cooperative housing properties but are typically desirable for most other needs.
How are application fees charged in Freddie Mac Floating-Rate Loans?
There are required application fees. This is typically $2,000 or 0.01 percent, whichever amount is higher if the loan is a conventional first mortgage. In situations where the loan is for senior housing, the application fee is typically $5,000 or 0.15 percent of the borrowed amount. For those projects for targeted affordable housing loans, the application fees are $3,000 or 0.1 percent typically of the loan amount. Additional fees may apply as well.
Are there prepayment options through Freddie Mac Multifamily Floating-Rate Loans?
There are prepayment options available. There is a one-year lockout that is then followed by seven years of a 1% prepayment penalty. Another option is for a 3 percent penalty in the first year, a 2 percent penalty in the second year, and then six years of a 1 percent prepayment penalty.
Who is an eligible borrower for the Freddie Mac Floating-Rate Program?
Typically, these loans are available to limited partnerships, corporations, limited liability companies, and tenancies in common. They are available to borrowers who are a single-purpose entity for all loans over $5 million. If the loan is under this amount, the borrower could be a single asset entity as well.