Freddie Mac Small Balance Loans

Non-Recourse, Fixed and Adjustable-Rate Apartment Financing

Freddie Mac SBL Loan Facts

The Freddie Mac Optigo Small Balance Loan is the smallest multifamily loan offered by Freddie Mac. Freddie Mac is a public government-sponsored enterprise (GSE), which was founded as a result of the Emergency Home Finance Act of 1970. Its mandate is to expand the availability of mortgages by purchasing loans from lenders. After purchasing loans, Freddie Mac pools them together and securitizes them into bonds, which are purchased by investors. Then, Freddie Mac starts the process all over again.

As a result, lenders can avoid the risk of keeping a loan on their balance sheet, and can continue to profit by using their funds to make additional loans to new borrowers, stimulating the economy and making it easier to buy real estate. Like the Department of Housing and Urban Development (HUD), Freddie Mac does not directly provide loans. However, there is a substantial difference between these organizations: while Freddie Mac purchases loans for securitization, HUD is a government agency that insures lenders against loan defaults. Despite their differences, both are instrumental in increasing the amount of mortgage capital on the market.

Keep reading below to learn more, or click here to download our easy-to-read Freddie Mac SBL term sheet.

Basic Loan Facts

The Freddie Mac Optigo SBL program is known as one of the best ways to acquire or refinance smaller multifamily properties, especially in larger markets. From the time the program was initiated in 2014 to the end of 2017, more than 7,200 Small Balance Loans were closed, while an estimated additional 3,000 Freddie Mac SBL deals were closed in 2018.

If you want to understand the ins and outs of the Freddie Mac Optigo Small Balance Loan program, this is one of the best places to start. Below, we have provided some of the most essential facts about the Freddie Mac SBL program:

  • These loans are designed for the purchase or refinancing of existing multifamily and apartment properties with 5+ units.
  • They offer a variety of fixed and adjustable-rate loan terms between 5 and 20 years, with 30-year amortizations. 1-3 year interest-only periods are available, with full-term interest-only SBL loans available for qualified borrowers under certain conditions.
  • Freddie Mac Small Balance Loans make it easier for multifamily investors to get long-term, non-recourse financing at extremely competitive interest rates.
  • Small Balance Loans are generally more asset-based than bank loans, but still require borrowers to have strong financials. These generally include a net worth equal to or greater than the entire loan amount (not including retirement accounts). They should also have a minimum liquidity equal to at least 9 months of mortgage payments post-closing.
  • Originating agency loans like those offered under the Freddie Mac Small Balance Loan program typically takes longer and is more complex than closing a bank loan, but is generally faster than closing HUD/FHA multifamily financing. In general, borrowers who have never dealt with agency multifamily loans will want to work with an expert advisor throughout the entire process. Freddie Mac SBL deals generally close in between 45 to 60 days.

Freddie Mac Small Balance Loan Program Synopsis

To enhance your understanding of the Freddie Mac SBL program, we’ve included an additional recap of the program below:

  • As of July 2019, rates for the Optigo SBL program ranged from 4.08% to 5.16%. Rates are generally lower in larger markets and for shorter-term loans, and are higher in smaller markets and for longer-term financing.
  • All SBL financing options come with 30-year amortizations. As previously mentioned, interest-only periods are available, with full term I/O options for eligible borrowers.
  • Non-contiguous properties are SBL-eligible; these are referred to as scattered-site transactions. However, each property must be within 1 mile of each other and each building must have 5+ units, as well as meeting several other criteria.
  • Subordinate financing (including mezzanine loans) is not allowed, though approved supplemental financing may be allowed in some circumstances.
  • Most loans begin at $1 million. Loans between $750,000 and $1 million are permitted but must meet additional eligibility requirements. The maximum loan amount for this program is $7.5 million.