Freddie Mac Floating-Rate Financing for Multifamily Properties

Freddie Mac Insured Floating Rate Loans for Acquiring and Refinancing Multifamily Developments

If you're a developer or investor looking for flexible and affordable adjustable-rate financing, a Freddie Mac Floating-Rate Loan could be the ideal solution. Freddie Mac Floating-Rate Loans typically offer some of the lowest interest rates found anywhere, and can often be used effectively as a bridge loan, especially for investors who plan to sell the property or get permanent financing in the near future. Floating-Rate loans are available for property types including standard multifamily housing, manufactured housing communities, seniors housing, and Targeted Affordable Housing properties (including cash LIHTC Year 4-10 and 11-15 and Section 8 loans), but are not available for cooperative housing properties. 

Freddie Mac Floating-Rate loans start at a minimum of $5 million (though smaller loans can be considered), allow LTVs of up 80%, and have 5, 7, and 10 year loan terms with amortizations of up to 30 years. Plus, these loans are non-recourse, permit eligible mixed-use properties, and allow for both the purchase and refinancing of multifamily properties. 

Sample Freddie Mac Terms For Floating-Rate Loans

Size:  $5 million to $100 million (however, smaller and larger loan sizes will be considered)

Terms:  5, 7, and 10-year terms, partial term and full-term interest-only financing available. Typically, interest-rate caps are required and can be purchased from a third-party. Caps are not required for loans with an LTV of 60% or less. 

Amortization:  Up to 30 years

Interest Rate:  Based on 1-month LIBOR index 

Eligible Properties: 

Freddie Mac Floating-rate loans are available for: 

  • Standard multifamily housing properties
  • Manufactured housing communities
  • Seniors housing developments
  • Targeted Affordable Housing properties (including cash LIHTC Year 4-10 and 11-15 and Section 8 loans) 

Freddie Mac Floating-Rate Loans are not available for cooperative housing properties. 

Eligible Borrowers:  

  • Limited partnerships, tenancies in commons (TICs), corporations, or limited liability companies
  • For loans over $5 million, the borrower must be a single purpose entity, while for loans under $5 million, the borrower may be a single asset entity
  • For tenancies in common, there must be no more than 10 tenants in common, and each must be a single purpose entity (SPE) 

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%/1.35x 
  • 7+ Year Loans: 
    • Amortizing: 80%/1.25x 
    • Partial Term Interest-Only: 80%/1.25x 
    • Full Term Interest-Only: 70%1.35x 

Prepayment Options:  Options include: 

  • 1-year lockout followed by 7 years of 1% prepayment penalty 
  • 3% penalty in 1st year, 2% penalty in 2nd year, followed by 6 years of 1% prepayment penalty 
  • 5%, 4%, 3%, 2% step-down for the first 4 years, followed by 4 years of 1% prepayment penalty 
  • 7%, 6%, 5%, 4%, 3%, 2%, 1%, 1% step-down prepayment penalties (only available for 10-year capped floating rate loans) 

*No prepayment penalties at all for the last 90 days of the loan 

Recourse:  Loans are non-recourse with standard “bad boy” carve-outs

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 between 45 and 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 
  • Loans are non-recourse 
  • Certain mixed-use properties are eligible 
  • Can be effectively used as a bridge loan in many situations 

Disadvantages:

  • 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 
  • Requires replacement reserves 
  • 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)