Freddie Mac Flexible Tax-Exempt Loan (Float-to-Fixed)
Freddie Mac Flexible Tax-Exempt Loans are intended for the renovation of Targeted Affordable (TAH) properties with 4% LIHTC credits. This financing comes in floating-rate, fixed-rate, and float-to-fixed rate options, with LTVs up to 90% of market value and DSCRs as low as 1.15x.
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Freddie Mac's Tax-Exempt Loans are a great way to purchase or refinance an affordable housing property with 4% Low-Income Housing Tax Credits (LIHTCs) in order to make renovations. However, borrowers looking for more flexibility may want to consider its newer sibling, the Freddie Mac Flexible Tax-Exempt Loan.
Freddie Mac Flexible Tax-Exempt Loans have a 3-year, interest-only floating-rate period, followed by an up to 15-year fixed-rate period, which can significantly reduce payments during a property's rehab period. Plus, underwriting criteria for Flexible Tax-Exempt Loans is based on traditional Tax-Exempt Loans, which means they offer maximum LTV allowances up to 90% of a property's market value, and DSCRs as low as 1.15x.
To learn more, check out Freddie Mac’s official Flexible Tax-Exempt Loan Product Sheet or keep reading below for an in-depth explanation of the Freddie Mac Flexible Tax-Exempt Loan program.
Sample Freddie Mac Terms for Flexible Tax-Exempt Loans in 2023
Size: Varies based on LTV and DSCR requirements.
Use: Financing for the acquisition or refinance of stabilized affordable multifamily properties.
Terms: Floating-rate, interest-only loan for 3 year period (during rehab), before converting to fixed-rate, amortizing financing for the rest of the loan (up to 18 year total loan term permitted.)
Interest Rate: Floating-rate based on SIFMA or SOFR index
Interest-Rate Caps: Required for the floating-rate period of the loan
Amortization: Up to 30 years
Maximum LTV: 85% of adjusted value or 90% of market value (based on fixed-rate Freddie Mac Tax-Exempt Loans)
Minimum DSCR: 1.15x (based on fixed-rate Freddie Mac Tax-Exempt Loans)
Eligible Borrowers: Well-qualified Targeted Affordable Housing-approved borrowers.
Prepayment Penalty: 10-year lock out
Refinance Test: Based on the fixed-rate
Advantages:
3-year interest-only loan period reduces debt service payments during renovation (when property revenue may be significantly lower)
Eligible mixed-use properties supported
Does not change loan size or create additional proceeds
Deals with 4% LIHTC credits can be underwritten to 1.15x DSCR
Disadvantages:
No early rate locks or spread-locks allowed, standard delivery only
No supplemental loans allowed during floating-rate period