Freddie Mac Small Balance Loans vs. Fannie Mae Small Loans
When it comes to small balance agency loans, the Freddie Mac SBL program used to be the only option. However, several years ago, Fannie Mae released its Small Loan program, which has become an increasingly viable competitor to Freddie’s SBL program. In general, Freddie Mac Small Balance Loans are often a better choice for properties in larger markets, while Fannie Mae Small Loans are better suited for properties in smaller markets.
Unlike Freddie’s SBL program, Fannie Mae Small Loans offer fixed-rate terms up to 30 years, though a variety of other fixed and variable-rate options are also available. Fannie Mae also recently increase the maximum size for Small Loans; previously, they were limited to $3 million in the majority of markets (and $5 million in large markets) but they have been increased to $6 million nationwide. Unlike the SBL program, minimum DSCR for Fannie Mae Small Loans is set at 1.25x for all markets, which is one of the reasons why this product may be better for properties outside major MSAs.
While Fannie Mae’s DSCR requirements may be better for some borrowers, Fannie Mae Small Loans have stricter credit requirements than Freddie Mac Small Balance Loans. In particular, Fannie Mae Small Loan borrowers need a minimum credit score of 680, while Freddie Mac SBL borrowers may have a credit score as low as 650. Tenant restrictions are also somewhat stricter; while the SBL limits student and military tenant concentrations to 50% or less, Fannie Mae Small Loans limit these concentrations to 20%. Plus, Fannie Mae is also somewhat stricter when it comes to commercial space; properties financing by Fannie Mae Small Loans generally must derive no more than 20% of their effective gross income from commercial tenants, while for Freddie Mac, this limit is 25%. Finally, supplemental financing is a little easier to come by for Small Loans, as they are eligible for Fannie Mae Supplemental Financing 12 months after origination.