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Freddie Mac Value-Add Loans
Freddie Mac Value-Add Loans allow investors to acquire or refinance a property and make planned upgrades of between $10,000 and $25,000 per unit. Value-Add Loans are interest-only, non-recourse, and allow LTVs up to 85% and DSCRs as low as 1.10x.
Freddie Mac Insured Non-Recourse Loans for the Light Renovation of Multifamily Developments
If you're an investor or developer looking to make light upgrades to your property without going through the hassle of taking out an expensive construction loan, or, if you want to purchase a new property and make light renovations, the Freddie Mac Value-Add Loan could be a great option. Freddie Mac Value-Add Loans are specifically designed for properties with planned upgrades of between $10,000 and $25,000 per unit, and have LTV allowances of up to 85% and DSCR allowances of as low as 1.10x. Plus, these loans are available for acquisitions and refinances, are interest-only, and are non-recourse, making them an excellent choice for investors looking to increase the marketability and profitability of their multifamily properties.
To learn more, check out Freddie Mac’s official Value-Add Loan Product Sheet or keep reading below for an in-depth explanation of the Freddie Mac Value-Add Loan program.
Sample Freddie Mac Terms for Value-Add Loans in 2023
Size: Varies based on LTV and DSCR requirements, based on 7-year sizing note rate
Use: Acquisitions and refinances
Terms: 3 years with one 12-month extension (borrower's request), and another optional 12-month extension (based on Freddie Mac discretion)
Interest Rates: Floating-rate interest only loan
Interest-Rate Caps: Not required
Maximum LTV: Up to 85%
Minimum DSCR: 1.10x -1.15x (depending on market)
Recourse: Non-recourse with standard “bad boy” carve-outs
Eligible Borrowers: Must have experience with the rehabilitation of multifamily properties. Guarantors must have 1.5x the standard liquidity/net worth requirements.
Eligible Properties:
Properties must have no more than 500 total units
Eligible properties are high-quality and only require moderate renovation
REO (real-estate owned) properties in receivership or properties performing below market averages (especially those requiring improved management) are also eligible
No seniors housing, student housing, or manufactured housing communities permitted
Renovation must start within 90 days of origination and must be complete within 33 months
Planned upgrades must be between $10,000 and $25,000 per unit
50% of budget should be spent on unit interiors
Up to 85% LTV allowance
Budget can be increased up to 20% without approval
Up to 50% of funds can be spent on exteriors
Eligible mixed-use properties supported
No refinancing test required
Loan can be extended for one year (for borrowers in good standing) with a 0.5% extension fee
An additional one year extension (with Freddie Mac permission) is available for a 1% extension fee
Longer term owners can often get cash out (with a completion guaranty)
Requires third-party reports including Appraisal, Physical Needs Assessment, and Phase I Environmental Assessment
Appraisal must include as-stabilized values (underwriting needs to support a 1.30x DSCR and a 75% LTV based on as-stabilized property value)
Engineering review is required at loan maturity in order go ensure the quality and completion of work
Replacement reserves are generally required
Loans are not assumable
Additional rehabilitation escrow or completion guaranty required
Application fee and good faith deposit also required
15% cash equity is usually required
2% rate lock fee typically required (refunded after Freddie Mac purchases loan)
Freddie Mac fee of $2,000 or 0.1% of the loan amount (whichever is greater) also required
Other Rehab Requirements:
Refinancing Test: Not required
Assumability: Not assumable
Prepayment Penalty: Loan can be paid off at any time with 1% penalty. No penalty if the loan is refinanced with Freddie Mac.
Cash Equity Requirement: Typically 15%
Advantages:
Disadvantages: