- Freddie Mac’s Small Business Loan program provides a wide range of benefits for borrowers. These are fast and flexible loan programs that offer cost-effective benefits to borrowers.
Freddie Mac Small Balance Loan Highlights
Loan Amounts: Ranges from $1 million to $7.5 million maximum lending.
Loan Terms Minimum $1,000,000.
Interest Rate: 20-year hybrid ARM loans with a fixed interest rate 5, 7, or 10-year period or they may be a 5, 7, or 10-year fixed interest rate loan.
Uses: Refinancing or acquiring property.
Amortization: Available at up to 30 years, with partial interest-only options typically available, as well as full-term interest-only options in some situations depending on the property.
Prepayment Penalty: Step down or yield maintenance, with some qualifying for a soft step down.
Minimum DSCR: 1.20 in Top Markets, 1.25 in Standard Markets, 1.30 in Small Markets, and 1.40 in Very Small Markets.
Maximum LTV: In Top and Standard Markets, LTV is 80%, in Small and Very Small Markets, LTV is 75%, and in Small and Very Small Markets, LTV is 70% for refinances.
Eligible Borrowers: Could include Single Asset Entities, Limited Partnerships, Special Purpose Entities, Limited Liability Companies, and tenancy in common with up to 5 unrelated members, as well as individual guarantors of irrevocable trusts.
Net Worth: Must be no less than the loan amount.
Liquidity: Must be equal to 9 months of principal and interest at least.
Recourse: These loans are non-recourse with standard carve-out provisions.
Assumable: Subject to approval and 1% fee.
Application Fee: Non-refundable application fee that is typically 0.1% of the loan amount in all markets, except in Top Markets.
Deposit: A Good Faith Deposit of 1% of the loan amount is due upon loan acceptance.
Advantages of Freddie Mac Small Balance Loans
- High LTV: They allow for up to 80% LTV allowance in some situations.
- Interest: There are interest-only options.
- Rate Lock: Terms range from 60 to 120 days.
- Non-Recourse: These are non-recourse loans.
- Ease of Application: The application process is streamlined.
Disadvantages of Freddie Mac Small Balance Loans
- Requirements: Third-party reports are required.
- Processing Fee: There is a large application fee and a Freddie Mac processing fee
- Reserves: Replacement reserves are needed.
Unprecedented Access To Commercial Loan Options
CommLoan brings you one-stop shopping and unprecedented access to the capital markets.
What Are Freddie Mac Small Balance Loans?
Freddie Mac Small Balance Loans make it possible for small apartment owners to obtain the necessary financing they need. These loans may be available for either acquisition or for refinancing existing loans. Though Freddie Mac has often supported larger loans and borrowers, this program aims to provide for the needs of smaller investors.
The Freddie Mac Small Balance Loan aims to make these loans more accessible to borrowers. Typically, small-balance loans tend to cost too much for borrowers. The cost of obtaining third-party reports and paying application fees often outweighs the benefits to the property owner.
The Freddie Mac Small Balance Loan helps to improve this by offering a more streamlined and efficient method. Costs, access, and requirements differ based on the market the property is in, providing more opportunities for lucrative financing. More so, the overall fixed costs are lower, and interest rates on these loans tend to be much lower and within reach of today’s borrowers than what could be expected from using a traditional large loan.
What properties are eligible for Freddie Mac Small Loan Program financing?
These loans are typically for:
- Multifamily properties with over 5 units, loans of over $6 million, and properties with over 100 units require special financing approval from Freddie Mac.
- Non-contiguous properties if they are in the same zip code and managed as a single property or asset.
- Mixed-use properties are available though no more than 40% of the non-residential income and no more than 40% of the net rentable area can be for commercial use.
- Occupancy must be at 90% for the previous 90 days, with some exceptions to lower that to 85%, as well as exceptions for new construction properties. Additionally, this may drop to 85% for properties with more than 30 units or in situations where acquisitions have no serious crime or have just been taken over by management.
- Affordable Properties that qualify for the Low-Income Housing Tax Credit with Land Sue Restriction Agreements in their final 24 months of compliance period or in an extended compliance period may qualify.
- Affordable properties that have tenants with housing vouchers and those with rent subsidies for under 10% of the units where the subsidy is not based on the owner’s initial or ongoing certificate of approval of eligibility of tenants could also qualify for these loans.
This includes multifamily homes, those with at least 5 units. It is not for smaller properties.
What types of property are ineligible for Freddie Mac Small Loan Program financing?
This includes any type of senior-specific housing with residential services, student housing that has more than 50% of units with students, military housing that has more than 50% of military members, and properties that are a part of the Housing Assistance Program Section 8. In addition to this, it does not apply to LIHTC properties with LURAs that are in the first 1 to 12 years of compliance years. It does not apply to Historic Tax Credit properties that have a master lease structure.
What are the Top Markets?
This includes counties in New York and Washington D.C., as well as cities such as Los Angeles, Chicago, San Francisco, Miami, Boston, Settle, Denver, San Diego, Minneapolis, San Jose, and Stamford.
What other borrower requirements are there?
Aside from liquidity and network, borrowers must have a credit score of 650 or higher, no bankruptcies, foreclosures, defaults, or deed-in-lieu for the previous 7 years, at least one year of experience with a multifamily home or commercial real estate experience, and others.