Freddie Mac Small Balance Loans

Non-Recourse, Fixed and Adjustable-Rate Apartment Financing

Freddie Mac Multifamily Financing Options

While the Freddie Mac Optigo Small Balance Loan program is an excellent option for many borrowers, it’s far from the only multifamily financing option offered by Freddie Mac. In fact, Freddie Mac offers over 30 multifamily loan options, including special programs for Section 8 and LIHTC-funded properties, value-add and supplemental loans, as well as loans for seniors housing, student housing, workforce housing, and manufactured housing. On this page, we’ll touch on a few of the more popular alternatives to the Optigo Small Balance Loan program to make sure you understand more of your options.

Freddie Mac Fixed-Rate Conventional Loans

Fixed-rate conventional loans are a great alternative to the Optigo SBL program, especially for borrowers who are seeking $5 million+ in multifamily financing. These loans offer borrowers better terms for properties in smaller markets, as well as higher-leverage for full-term interest-only (I/O) financing, as well as offering 30-year fixed-rate loan terms for loans that are not purchased for securitization. Plus, these loans are more flexible when it comes to affordable properties, including those financed with Low-Income Housing Tax Credits. Terms include:

  • Size:  $5 million – $100 million (amounts can be somewhat flexible)
  • Use:  Purchases and refinances
  • Terms:  5-10 years (30-year fixed-rate loans allowed if loans not securitized)
  • Amortization:  Up to 30 years, with interest-only options
  • Recourse:  Non-recourse with standard carve-outs
  • Leverage:
    • 5-7 Year Terms:
      • Amortizing and Partial Term I/O: 75%/1.30x
      • Full Term Interest-Only: 65%/1.40x
    • 7 Year Terms:
      • Amortizing and Partial Term I/O: 80%/1.25x
      • Full Term Interest-Only: 70%/1.30x
    • 7+ Year Terms:
      • Amortizing and Partial Term I/O: 80%/1.25x
      • Full Term I/O: 70%1.35x

Like most types of Freddie Mac multifamily loans, fixed-rate conventional loans are non-recourse and fully assumable with lender approval and a 1% fee. However, they can be considerably more expensive to originate than Small Balance Loans, as they generally require a $2,000 Freddie Mac application fee, around $15,000 in lender application fees, and around $10,000 in legal fees, for an average total application cost of $27,000.

Float-to-Fixed Rate Loans

Freddie Mac Float-to-Fixed Rate Loans are another popular Freddie Mac Multifamily financing option, offering a 2-year floating-rate period term followed by a 7-year fixed rate period, the rate of which is fixed before closing. By using this structure, borrowers can often obtain a better rate than they would have otherwise.

  • Size:  Based on fixed-rate
  • Terms:  9 year term: 2 years variable-rate, I/O, 7 years fixed-rate
  • Amortization:  Up to 30 years
  • Recourse:  Non-recourse with standard carve outs
  • Interest Rate:  
    • Floating rate: Based on 1-month LIBOR + 7-year adjustable rate pricing + 0.2%
    • Fixed rate: Based on 7-year US Treasury + 7-year fixed rate pricing + 0.2%
  • Leverage:  Sized based on fixed-rate
  • Prepayment Penalty:  2-year lockout (simultaneous with floating-rate period),  defeasance allowed afterward
  • Timeline: Loans usually close between 60-75 days after initial application

Moderate Rehab Loans

While the Freddie Mac SBL program does offer cash out in some circumstances, it’s generally not the best option for borrowers who want to complete a moderate rehabilitation of their property. Instead, borrowers may be better off with Freddie Mac’s Moderate Rehab Loan Program, which provides non-recourse financing for moderate rehabilitations with between $25,000 and $60,000 in renovations per unit. A minimum $7,500/unit must spent on interior upgrades. Terms include:

  • Size:  Varies, based on LTV and DSCR requirements
  • Use:  Moderate renovations of conventional multifamily and apartment properties
  • Terms:  Multiple options, generally float-to-fixed-rate structure– can be customized on a case by case basis. Interest-only (I/O) financing provided during building renovation period.
  • Amortization:  Flexible, adjusted on an individual basis
  • LTV:
    • No more than 80% of current, as-is value (supported by purchase price, if purchased recently)
    • Proceeds drawn monthly or quarterly in order to reimburse sponsor for up to 80% of the rehabilitation costs
    • Appraisal must demonstrate no more than 80% as-improved LTV
  • DSCR:  
    • Minimum 1.20x I/O DSCR “as is”
    • 1.30x amortizing DSCR after property improvements
  • Recourse:  Non-recourse with standard carve outs

Value-Add Loans

While the Freddie Mac Moderate Rehab loan is a great option for borrowers who want to make moderate repairs to a multifamily property, it may not be the best option for those who want to make lighter (and less expensive) property repairs. Fortunately, Freddie Mac Value Add Loans are intended for borrowers who want to make repairs of between $10,000 and $25,000 per unit. Plus, they allow incredibly generous DSCR allowances of as low as 1.10x, with LTVs of up to 85%. Terms include:

  • Size:  Varies based on leverage
  • Use:  Purchases and refinances
  • Terms:  3 years with 2 optional 1-year extensions (second extension is requires special approval from Freddie Mac)
  • Rate Structure:  Adjustable rate I/O loan
  • LTV/DSCR Requirements: Up to 85% LTV/1.10x- 1.15x minimum DSCR
  • Recourse:  Loans are non-recourse with standard carve-outs
  • Borrower Requirements: Experience with multifamily rehabilitation is required. Guarantors also must generally have a combined net worth of 1.5x the loan amount, and a combined liquidity of 1% of the loan amount.
  • Property Requirements:
    • Properties must generally be high quality
    • 500 unit maximum
    • Student Housing, Seniors Housing, and Manufactured Housing Communities are not allowed
  • Rehab Requirements:
    • Rehab projects must be between $10,000 and $25,000 per unit
    • Rehab needs to begin no more than 90 days after loan closing
    • Rehab period cannot last longer than 33 months
    • 50% of funds need to be allocated to the improvement of unit interiors
  • Loan Assumability:  Value add loans cannot be assumed by a new borrower
  • Prepayment:  1% prepayment penalty (no lockouts). Prepayment penalty waived if the loan is refinanced with Freddie Mac.