- Freddie Mac Multifamily supplemental loans provide a financing option for those looking for additional financing for apartment buildings and multifamily developments.
Freddie Mac Supplemental Loan Highlights
Loan Amounts: Loans are available for up to $1 million
Requirements: These are second mortgage loans and must be coterminous with the original mortgage on the property or may exceed the term of the original loan for no more than 24 months. There must be at least 12 months between the closing on the first mortgage loan on the property and the second or the closing of a previously obtained supplemental mortgage loan. The term must be at least three years.
Interest Rate: These loans have a fixed or a floating interest rate structure on the preexisting loan. Check current LIBOR rates.
Minimum LTV / Minimum DSCR: This depends on the loan structure. For a 5 to 7-year amortization loan, expect 75 percent /1.30x, with the same for a partial term interest-only loan. For a full-term interest-only loan, expect 65 percent / 1.40x. In a 7-year loan, expect amortization at 80 percent / 1.25x, with the same for a partial term interest only and for full term interest only, expect 70 percent / 1.30x. Loans over 7 years expect 80 percent/ 1.25x for amortizing and partial term interest only, with full-term interest-only equating to 70 percent /1.35x.
Eligible Borrowers: These loans are available to current Freddie Mac borrowers who have a first loan with the organization that is in good standing. All of the borrower’s loans must have originated at least 12 months prior and must have at least three years left on their original terms.
Types Of Property: Eligible properties include conventional multifamily housing properties as well as student housing, senior housing, Targeted Affordable Housing, and manufactured housing communities. Senior housing and Targeted Affordable Housing properties may have different loan structures and terms.
Assumability: These loans are fully assumable, though there is the requirement of lender approval and a 1 percent fee associated with the transaction
Minimum Debt Yield: 7-8%
Timing: Most of the time, it takes these loans between 45 and 60 days from the initial application through the closing, though third-party report requirements and borrower due diligence may be factors.
Prepayment Penalty: Yield maintenance applies
Advantages of Freddie Mac Supplemental Loans
- Access To Funds: These loans provide access to additional funds that borrowers need, which allows the borrower to avoid the costly and time-consuming refinancing process.
- Supplemental Loans Allowed: It is possible to obtain more than one supplemental loan allowing borrowers to meet their needs on a continuous basis.
- Split Supplemental Loans: It is possible to utilize split supplemental loans with these Freddie Mac property loans. That means that these loans can be placed alongside the original loan at the same time.
- Interest Rates: The interest rate on these loans tends to be highly competitive and within reach of most borrowers when compared to other borrowing options.
Disadvantages of Freddie Mac Supplemental Loans
- Servicing Fee: There is a servicing fee required, and it can be substantial in some cases. The amount is dependent on the amount of the supplemental loan.
- Replacement Reserves: Lenders will require replacement reserves to be available.
- Third-Party Reports: There are third-party reports that are a necessary requirement. This includes an Appraisal, Phase 1 Environmental Assessment, and a Physical Needs Assessment. In addition to this, for properties that are located within Seismic Zones 3 and 4, there is also a seismic report required as a part of obtaining these.
- Additional Fees: There are fees involved in these loans, including a fee of $2,000 or 0.1% of the amount borrowed for the loan, whichever figure is larger. There is also a $15,000 lender application fee that can help to cover the costs of underwiring and third-party reports. There is also usually an origination fee.
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What Are Freddie Mac Supplemental Loans?
Freddie Mac Supplemental Loans provide an opportunity for borrowers to obtain additional funding to meet their goals. These loans may be available to use for upgrading property or for other needs. These loans provide as much as $1 million in additional funding and provide a loan-to-value allowance on those properties of up to 80 percent, making them highly accessible to many borrowers. The loans are also non-recourse, which means that borrowers do not have to worry about personal responsibility for these funds. For those developers or property owners that need additional funding to cover costs or to better enhance their properties, these loans can be an exceptional option.
There are two options available for these loans. Split supplemental loans are offered at the same time as the original Freddie Mac loan. Seasoned supplemental loans are a second option that becomes available 12 months or longer after the original Freddie Mac loan is taken out.
Is there an early rate lock feature with Freddie Mac multifamily supplemental loans?
Yes, there is typically the availability of an early rate lock with these loans. This includes 60 to 120 days prior to the purchase. It is also possible to utilize fast-track early rate lock as well as index locks, both of which could be beneficial to some borrowers.
What limits exist on these types of Freddie Mac Loans?
There are limits, including those applied by the lender. These loans are typically unlimited though they are subject to terms and conditions. Also notable, if there are under five years left on the original term, then the lender may quire the supplemental loan sizing to be based on more risk analysis.
Can borrowers obtain more than one supplemental loan?
Yes, it is possible to obtain more than one supplemental loan during the lifetime of the original Freddie Mac loan. The only limitation is that there must be at least 12 months between the original loan origination and the start of the new loan.