Maximum LTV/Minimum DSCR: 

• 5-7 Year Loans:

  • Amortizing: 75%/1.30x

  • Partial Term Interest-Only: 75%/1.30x

  • Full Term Interest-Only: 65%/1.40x

• 7 Year Loans:

  • Amortizing: 80%/1.25x

  • Partial Term Interest-Only: 80%/1.25x

  • Full Term Interest-Only: 70%/1.30x

• 7+ Year Loans:

  • Amortizing: 80%/1.25x

  • Partial Term Interest-Only: 80%/1.25x

  • Full Term Interest-Only: 70%/1.35x

Recourse: Non-recourse with standard “bad boy” carve-outs

Prepayment Options: Yield maintenance until securitization, 2-year lock-out period following securitization, defeasance allowed after securitization. Yield maintenance for securitized loans is permitted for an additional fee. No pre-payment premiums required in the last 90 days of the loan. 

Eligible Borrowers: 

• Eligible borrowers include limited partnerships, limited liability companies, corporations, or tenancies in common (TICs) with 10 or fewer members

• In some circumstances (and with specific requirements), general partnerships, REITs, limited liability partnerships, and some trusts may also be eligible

• Typically, borrowers must be single purpose entities (SPEs), however, on loans less than $5 million, borrowers may be able to be Single Asset Entities instead

• For tenancies in common (TICs), each member needs to be a SPE

Eligible Properties: 

• Conventional multifamily properties, manufactured housing communities, seniors housing developments, cooperative housing, student housing developments, and targeted affordable housing, including LIHTC Year 4-10 and 11-15 and Section 8 properties

Refinancing Test: No test needed for amortizing loans with a DSCR of at least 1.40x and an LTV of less than or equal to 65%. Interest-only loans must pass a refinancing test before they are approved. 

Assumability: Loans are assumable with lender approval, but require a 1% assumption fee paid to Freddie Mac. May also require an underwriting fee paid to the lender (typically $5,000.)

Timing: Borrower will typically receive a commitment 45 to 60 days after initial application; third-party report timing and borrower due diligence submission may speed up or slow down the process 

Advantages

• Very competitive interest rates

• Up to 80% LTV for some properties

• Loans are non-recourse

• Supplemental loans allowed

• Mezzanine financing available

• Early rate-lock options allowed, between 60-120 days before purchase, index locks are also available to eligible borrowers

• Eligible mixed-use properties permitted

Disadvantages

• Requires replacement reserves

• Requires third-party reports including Phase I Environmental Assessment, Appraisal, Physical Needs Assessment, Seismic Report may be required for properties in Seismic Zones 3 and 4

• Application fees required: $2,000 or 0.1% of loan amount (whichever is larger) for conventional first mortgages, $5,000 or 0.15% of loan amount (whichever is larger) for seniors housing, $3,000 or 0.1% of loan amount (whichever is larger) for targeted affordable housing loans

• Typically requires a loan origination fee

• Typically requires between $8,000 and $12,000 in legal fees

• Lender application fees also required (avg. of $15,000, including third-party reports, but may vary based on specific lender)

• 2% rate lock fee usually required (refunded after Freddie Mac purchases loan, usually around 30 days post-closing)

Case Study: Financing a Sioux Falls Purchase

Meet John, a seasoned investor. In the summer of 2023, he set his eyes on a large multifamily property in Sioux Falls, South Dakota. This 45-unit property was listed for $7 million in an up-and-coming neighborhood that was seeing an influx of young professionals.

John saw the potential for this investment and decided to apply for a Freddie Mac Fixed-Rate Conventional Loan to finance the acquisition. The strong rental market in Sioux Falls and the property's robust occupancy rates strengthened his loan application.

He successfully secured a Freddie Mac loan of $5.2 million, which came in below the program's maximum loan-to-value (LTV) ratio of 80%. The loan term was set at 30 years, with an equal amortization period that would facilitate manageable monthly payments.

As the Freddie Mac loan was non-recourse, it limited John's personal financial liability, providing him with additional security. Though John was an individual investor, his real estate experience and solid credit history met the lender's underwriting criteria.

To fulfill the loan requirements, John hired professionals to complete the required third-party reports, which included a property appraisal and a Phase I Environmental Assessment. These reports added to his upfront costs but were crucial for meeting the lending guidelines.

Overall, the Freddie Mac loan was an effective financing solution for John's investment. He was able to acquire the multifamily property with a sizable, long-term loan that offered a competitive interest rate and limited personal financial risk. This case demonstrates the utility and flexibility of Freddie Mac loans for experienced real estate investors.

This is a fictional case study provided for illustrative purposes.

In this article:

1. Freddie Mac Financing for Conventional Multifamily Properties
2. Sample Freddie Mac Terms for Fixed-Rate Conventional Loans in 2024
3. Advantages
4. Disadvantages
5. Case Study: Financing a Sioux Falls Purchase
6. Get Financing