Behind Freddie Mac's Expanded SBL Link Loan
The program update allows financing for small, non-contiguous buildings in any market nationwide, provided the portfolio has at least 10 units. Find out more.Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
Freddie Mac has announced an expansion of the Link Loan component of its Small Balance Loan, or SBL, financing program. The update, effective Nov. 1, 2022, now allows the program to cover financing for multifamily buildings of two to four units, even if they are not contiguous.
It also expands market coverage. Previously, linked loans were allowed only in top and standard markets as defined by Freddie®. Now, the program can be utilized in any market nationwide.
This means that, even in Greenville, S.C., a three-unit apartment building down the street from a seven-unit complex can qualify for a Freddie Mac SBL loan. Previously, this loan would only have been available if the buildings’ parcels bordered each other. Under the new guidelines, regardless of the number of buildings, they should all be within 3 miles of each other — though distances of up to 5 miles may be considered on a case-by-case basis.
This change may not mean all non-contiguous properties are covered, however. Freddie Mac provides a list of criteria, outlined below.
Minimum Loan Amount
The minimum loan amount for a Freddie Mac SBL Link Loan is $2 million, regardless of the number of units. Compare this to the standard Freddie SBL minimum of $1 million.
Minimum Units and Configuration
There must be at least 10 units in the portfolio to qualify. For each component of the portfolio, note that one-unit buildings which are not contiguous are expressly excluded from the program.
Let’s illustrate with an example. If a portfolio includes three non-adjacent three-unit buildings, plus a one-unit structure located a short distance from one of the other buildings, this property would not qualify for a Freddie SBL Link Loan. If, however, the one-unit building is on a parcel that borders one of the others, it would meet the criteria.
Note that, regardless of the configuration and number of units, a fractured condominium property will not qualify under this program.
The borrower must provide financial reports that are aggregated. In other words, any reports must treat the individual buildings as one property, rather than a number of separate ones. Financial reporting must also be in line with Loan
This requirement also applies to the appraisal and the property condition assessment. The structures must all be considered one property.
As mentioned above, the physical structures are not restricted to certain markets. However, there are some criteria that must be met.
First, all buildings must be within 3 miles of each other. Some exceptions up to 5 miles may be permitted by Freddie Mac.
Second, the buildings must all be located within the same county, and, by extension, within the same state. This could be particularly of note for multifamily investors with properties in metros intersected by county or state lines — think Kansas City, Charlotte, N.C., or Louisville, Ky., among many others.
Property Management, Owner Occupancy
In order to qualify for a Freddie Mac SBL Link Loan, all buildings must be managed by the same property manager. This ensures the consistent property management standards for the encumbered units, something that is a focus of the SBL program.
Another point the new guidelines mention is that no unit within the property may be occupied by the owner.
What is Freddie Mac's SBL Link Loan?
Freddie Mac's SBL Link Loan is a Small Balance Loan (SBL) program that was announced in 2014 by Freddie Mac Executive Vice President David Brickman. It is designed to assist small business owners in securing liquidity for their investments. The program offers loans for multifamily properties with loan amounts ranging from $2 million to $7.5 million. Some of the key benefits and features of the program are outlined here.
What are the benefits of the Freddie Mac SBL Link Loan?
The benefits of the Freddie Mac SBL Link Loan include a minimum loan amount of $2 million regardless of the number of units, a simplified pricing process, a simplified SBL insurance assessment, less documentation, a reduction in due diligence requirements, easier third party reporting, better pricing, a streamlined underwriting process, and either hybrid ARM or fixed-rate loan products. Source 1 and Source 2.
What are the eligibility requirements for the Freddie Mac SBL Link Loan?
The Freddie Mac SBL Link Loan has a minimum loan amount of $2 million, regardless of the number of units. All buildings must be managed by the same property manager and no unit within the property may be occupied by the owner.
For more information, please see Behind Freddie Mac's Expanded SBL Link Loan.
What types of properties are eligible for the Freddie Mac SBL Link Loan?
Eligible Property Types for the Freddie Mac SBL Program include multifamily and apartment properties with five or more units. This includes:
- Properties with commercial space that does not comprise more than 25% of the property’s gross income
- Independent living properties for seniors without resident services
- Low Income Housing Tax Credits (LIHTC), with land restrictions in the extended use period or the final 24 months of the initial restriction period (to qualify, eligible LIHTC properties must have 75 units or less and get special Freddie Mac approval)
- Other regulatory restrictions that limit income/rent (funds must be disbursed)
- Tax abatement properties
- Tenant-based housing voucher properties
- Buildings can have local rent subsidies for 10% or less units, as long as tenant eligibility certification is not required
- Cooperatives (must be located in New York City or Long Island)
Affordable Properties and the Freddie Mac SBL Program: Some affordable properties are eligible for Freddie Mac Small Balance Loans, while others are not. Affordable properties with non-profit borrowers, as well as early and mid-stage Low-Income Housing Tax Credit (LIHTC) deals are not permitted, however, rent-controlled properties, and properties with market-rate Section 8 vouchers are eligible. Below, we have provided a full list of affordable property types that are eligible and ineligible for the Optigo Small Balance Loan program.
SBL-Eligible Property Types
- Properties with income/rent restrictions occurring as a result of local laws/regulations, and not actually listed on the property title (ex. rent control)
- Properties with less than half of leases guaranteed by a legitimate non-profit with a minimum of 36 months of experience in low-income housing
- Properties with tax abatements (no rent or income restrictions may be on property title)
- Properties with market-level Section 8 tenant vouchers
SBL-Ineligible Property Types
- All properties owned by non-profit borrowers
- Housing Assistance Payment (HAP) contract properties
- Properties involving rental/income restrictions or a regulatory agreement on the property’s title
- LIHTC deals (both 4% or 9%) with a Land Use Regulatory Agreement (LURA) currently in place (generally including properties in their extended use period)
How does the Freddie Mac SBL Link Loan compare to other financing options?
The Freddie Mac SBL Link Loan is a great option for multifamily properties, as it has a minimum loan amount of $2 million, regardless of the number of units. This is compared to the standard Freddie SBL minimum of $1 million. Additionally, 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. Fannie Mae Small Loans offer fixed-rate terms up to 30 years, and have recently increased the maximum size for Small Loans to $6 million nationwide. However, Fannie Mae Small Loans have stricter credit requirements than Freddie Mac Small Balance Loans, with 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 for Fannie Mae Small Loans, as they limit student and military tenant concentrations to 20%, while the SBL limits these concentrations to 50%. 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.
What are the advantages of using the Freddie Mac SBL Link Loan for multifamily financing?
The Freddie Mac SBL Link Loan offers a number of advantages for multifamily financing, including a simplified pricing process, a simplified SBL insurance assessment, less documentation, a reduction in due diligence requirements, easier third party reporting, and competitive pricing. Additionally, the program offers either hybrid ARM or fixed-rate loan products. These benefits make the process easier for SBL sellers and servicers without reducing the quality of the loans. Source 1 and Source 2.