Freddie Mac Tax-Exempt Loans for Affordable Housing Developments

If you're considering purchasing, refinancing or renovating an affordable housing property with 4% Low-Income Housing Tax Credits (LIHTCs), a Freddie Mac Tax-Exempt Loan could be a fantastic option.

Freddie Mac Tax-Exempt Loans offer fixed-rate terms of up to 30 years and floating-rate terms of up to 10 years, as well as both interest-only and float-to-fixed rate loan options. Plus, these loans offer maximum LTV allowances of up to 90% of a property's market value and DSCRs as low as 1.15x for fixed-rate financing, and LTVs of up to 85% and DSCRs as low as 1.20x for floating-rate loans. 

Freddie Mac Tax-Exempt Loans also support eligible mixed-use properties and permit subordinate financing, making them an incredibly flexible tool for affordable property developers and investors. 

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

Sample Freddie Mac Terms for 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 with 4% Low-Income Housing Tax Credits (LIHTC) with at least 7 years remaining in the LIHTC compliance period. 

Terms:  

Fixed-rate, floating-rate, and fixed-to-floating rate options, minimum loan term is typically 7 years. Maximum terms include: 

• Fixed-rate loans: Up to 30 years

• Floating-rate loans: Up to 10 years

• Construction loans: Up to 36-months

Interest Rate:  

• Fixed-rate loans: Priced on a spread to 10-year Treasuries

• Floating-rate loans: Based on 30-day SIFMA or 1-month LIBOR index

Amortization: Up to 35 years

Maximum LTV:  

• Fixed-rate loans: 85% of adjusted value or 90% of market value

• Floating-rate loans: 80% of adjusted value or 85% of market value with interest rate hedge

Minimum DSCR:  1.15x for fixed rate, 1.20 for floating-rate, with interest rate hedge

Prepayment Penalty:  Minimum 10 years prepayment protection, then typically yield maintenance 

Subordinate Loans:  Permitted, supplemental financing not available 

Timing:  Loans typically take between 75 and 90 days to close, with some lenders closing in as little as 30 days 

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

Advantages:

• Avoids the risk and hassle of bond issuing

• Interest-only loan options

• Eligible mixed-use properties supported

• Immediately funding and forwards

• Subordinate financing allowed

• Fixed, floating, and float-to-fixed rate options

• Freddie Mac GAP financing may be available

• Rate locks available after commitment (early rate locks may also be available)

Disadvantages:

• Appraisal, Phase I Environmental Report, Physical Needs Assessment, Zoning, and Moisture Management reports are required; a Seismic Report may be required for properties in Seismic Zones 3 and 4

• Application fees, commitment fees, and other fees required

• Replacement reserves required

• No supplemental loans allowed

• 2% rate lock fee typically required (refunded after property reaches stabilization)

• Freddie Mac fee of $2,000 or 0.1% of loan amount (whichever is larger) also typically required