Freddie Mac Small Balance Loans
The Freddie Mac SBL program offers competitive terms for multifamily and apartment loans from $1 million to $7.5 million.
The Industry's Most Competitive Small Apartment Loan Program
Freddie Mac has consistently offered some of the industry's most competitive financing options for large multifamily loans — particularly loans north of $10 million. Eventually, however, Freddie Mac opted to get competitive in the small balance market, introducing the Freddie Mac Small Balance Loan into their line of financing options, and the product has been accepted with open arms as a viable alternative to the Fannie Mae Small Loan Program.
One of the most substantial obstacles to originating small balance loans is the cost to the borrower. Third party reports and lender legal don't vary much with the loan size, leaving fixed origination costs for a $1 million loan very similar to those of a $10 million loan. Freddie Mac has effectively addressed all these issues with the streamlined small balance loan program — known for substantially compressed fixed costs and rates as competitive as those for large loans.
Keep reading below to learn more, or click here to download our easy-to-understand Freddie Mac Small Balance Loan term sheet.
Sample Terms for the Freddie Mac Small Balance Loan in 2023
Loan Amount: $1 million minimum, $7.5 million maximum
Loan Uses: Acquisitions or refinances
20-year hybrid ARM with initial 5, 7, or 10-year fixed-rate period, OR
5, 7, or 10-year fixed-rate loan
ARMs typically based on 6-month LIBOR with up to 1% rate adjustments every 6 months. Lifetime cap set 5% over starting rate.
Amortization: Up to 30 years, partial interest-only options available, full-term interest-only options may also be available in certain circumstances.
Interest Rates: Vary, but lower for properties in Top and Standard Markets and higher for properties in Small and Very Small Markets
Multifamily: 5+ unit market-rate multifamily properties. For loans larger than $6 million, properties with more than 100 units must be approved by Freddie Mac.
Non-Contiguous Properties: Allowed if within same zip code and manageable as a single asset.
Occupancy: 90% for past 90 days (exceptions down to 85% and down to 30 days for new construction). 85% occupancy may also apply to properties with 30+ units, or acquisitions with no history of serious crime, or that have been recently taken over by sophisticated management.
Mixed Use: Available subject to no more than 40% non-residential income and no more than 40% of net rentable area.
Low-Income Housing Tax Credit (LIHTC) properties with Land Use Restriction Agreements (LURAs) that are in either the final 24 months of the initial compliance period or the extended use period (investor must have exited for property to be eligible).
Properties with tenant-based housing vouchers, and properties with local rent subsidies for 10% or fewer units where the subsidy is not contingent on the owner’s initial or ongoing certification of tenant eligibility are also eligible.
Seniors housing with residential services
Student housing (greater than 50% concentration)
Military housing (greater than 50% concentration)
Properties with Housing Assistance Program (HAP) Section 8 contracts and other project-based housing assistance payment contracts
LIHTC properties with LURAs in compliance years 1-12
Tax-exempt bonds Interest Reduction Payments (IRPs)
Historic Tax Credit (HTC) properties with a master lease structure
Market Tiers Defined
Top Markets: Certain Counties (but not all) in the following MSA’s: New York, Los Angeles, Chicago, Washington D.C., San Francisco, Miami, Boston, Seattle, San Diego, Minneapolis, Denver, Portland, San Jose and Stamford, CT.
Standard Markets: Typically greater than 60k rental population which includes most MSA’s of significant size.
Small Markets: Typically between 30k and 60k rental population.
Very Small Markets: Typically under 30k rental population.
Leverage / DSCR
Top Markets: Max LTV 80% for purchases, 80% for refinances, 1.20x DSCR minimum.
Standard Markets: Max LTV 80% for purchases, 80% for refinances, 1.25x DSCR minimum.
Small Markets: Max LTV 75% for purchases, 70% for refinances, 1.30x DSCR minimum.
Very Small Markets: Max LTV 75% for purchases, 70% for refinances, 1.40x DSCR minimum.
Prepayment Penalty: Step down or yield maintenance. Soft-step downs are also available.
Typical maximum interest only periods include:
1 year for 5 year terms
2 years for 7 year terms
3 years for 10 year terms
1 year available for 7 year loans
2 years available for 10 year loans
No I/O available for 5 year loans in small or very small markets
Full-term interest only available under some conditions with Freddie Mac approval.
Assumable: Subject to 1% fee plus borrower due-diligence.
Rate Reductions: Available for lower leverage and higher DSCRs.
$7,000 (covers 3rd Parties – Appraisal, Eng, Env, O&M’s)
10 basis points – Freddie Mac processing fee
Recourse: Non-recourse with standard “bad boy” carve-outs (carve-out waiver available with minimum 1.40x DSCR and maximum 65% LTV)
9 months principal and interest liquidity (before refi or after purchase). Retirement accounts not included.
Net worth equal to the loan amount.
Minimum 650 credit score.
No bankruptcies, foreclosures, deed-in-lieu, or defaults for 7 years.
At least one year multifamily or commercial real estate experience.
Borrowers up to $6 million: Individuals (U.S. citizens only), limited liability companies, limited partnerships, Single Asset Entities, Special Purpose Entities, tenancies in common (with up to five unrelated members), and Trusts (irrevocable trusts and revocable trusts with an individual guarantor.)
Borrowers more than $6 million: Single Asset Entities.
Documents Required for New Loan Submissions:
Personal financial statement and SREO for each guarantor (anyone with more than 20% interest).
Last 3 years operating statements.
Trailing 12 month, month-by-month operating statements.
Current rent roll.
Freddie Mac SBL Portfolio Executions provide benefits to borrowers who take out more than one SBL loan in top and standard markets.
Benefits: Fewer forms, may achieve better pricing and larger loan size. May also achieve reduced transaction costs.
Requirements: Sellers must collect and hold a Good Faith Deposit on behalf of Freddie Mac, of 0.1% of the loan amount or $50,000, whichever is greater. This is refundable to the borrower upon closing.
Up to 80% LTV allowance
Streamlined application process
Loans are non-recourse
Variety of hybrid ARM and fixed-rate options available
Loans are assumable with approval and 1% fee
60-120 day rate locks typically available
Requires third-party reports, including Appraisal, Phase I Environmental Assessment, and Engineering Report
Typically requires replacement reserves of between $200 and $300 per unit
Requires $7,000 application fee
Requires Freddie Mac processing fee of 0.1% of the loan amount
Subordinate debt not permitted