Freddie Mac Supplemental Financing 

If you currently have a Freddie Mac loan on a multifamily property and you're looking for additional financing — perhaps to make upgrades to your property — a Freddie Mac Supplemental Loan could provide the funding you're looking for. Freddie Mac Supplemental Loans start at $1 million, offer LTV allowances of up to 80%, and are non-recourse, making them an incredibly attractive option for investors and developers looking for extra financing to enhance their multifamily developments. 

Freddie Mac Supplemental Loans are offered in two varieties, Split Supplemental Loans, which are originated at the same time as the original Freddie Mac loan, and Seasoned Supplemental Loans, which must be originated at least 12 months after the original mortgage (or the last supplemental loan.) Plus, borrowers are allowed to take out more than one Supplemental Loan during the life of their original Freddie Mac loan, as long as there is a 12-month period after the origination of the last loan.

To learn more, check out Freddie Mac’s official Supplemental Loans Product Sheet or keep reading below for an in-depth explanation of the Freddie Mac Supplemental Loan program. 

Sample Freddie Mac Terms for Supplemental Loans in 2023

Size: Minimum loan amount $1 million, maximum amount dependent on LTV and DSCR requirements 

Use: Supplemental financing for current Freddie Mac Multifamily borrowers 

Terms: Vary, must typically be conterminous with the first loan, but in some cases may exceed the first loan by 24 months. Both fixed-rate and floating-rate loan options are available. 

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

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

Eligible Borrowers: Current Freddie Mac borrowers with first loans, currently in good standing. All other loans (both first loans and other supplemental loans), must have been originated at least 12 months ago and must have at least 3 years left on their terms.

Eligible Properties: Conventional multifamily housing, Student Housing, and Manufactured Housing Communities. Seniors Housing and Targeted Affordable Housing properties are also eligible but may have slightly different terms. 

Prepayment Penalty: Yield maintenance

Timing: The loan typically takes between 45 and 60 days from application to closing, depending on the timing of third-party reports and borrower due diligence. 

Assumability:  Loans are fully assumable with lender approval and a 1% fee

Advantages

• Provides borrowers access to additional funds at a lower cost than refinancing

• Early rate lock options are available, typically between 60-120 days before purchase. Index lock and fast-track early rate lock options are also available.

• Split supplemental loans are available; these are supplemental loans placed at the same time as the original loan

• More than one supplemental loan is allowed

• Loans are fully assumable with lender approval and a 1% fee

Disadvantages

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

• Servicing fee required, based on supplemental loan amount

• Replacement reserves required

• Freddie Mac application fee of $2,000 or 0.1% of the loan amount, whichever is greater

• Typical lender application fee of $15,000 (covers third-party reports and underwriting costs)

• Typically involves between $8,000 to $12,000 in legal fees

• Typically also requires an origination fee

• Typically requires a 2% rate lock paid at closing (refunded when Freddie Mac purchases loan, usually around 30 days after closing)