In the last year (announced in October 2014), the newest loan product to take the market by storm is the Freddie Mac Small Balance Loan. Small balance loans ($1-5M) comprise approximately 29% of the multifamily market and had only really been served by local and regional banks, whereas larger multifamily had Fannie and Freddie support.
The typical loan terms are:
- Non-recourse
- 5, 7, or 10 year fixed term with ability to float remaining term (up to 20 years total)
- $1M-$5M
- 30 year amortization
- Interest only for 1-3 years available
- Declining prepayment schedules
- Minimum 1.25x DSC and 75-80% LTV depending on market size
- Pricing of 4.50%-5.00% depending on market, LTV, and DSC coverage
Freddie SBL is beating bank loans since it offers:
- Non-recourse (many banks only do recourse)
- Longer amortization (30 years vs. banks are typically 20-25 years)
- Interest Only (Most banks start amortization day 1)
Freddie SBL is beating Fannie Mae small balance loans since it offers:
- Lower pricing (25-50 bps lower) than Fannie Mae Small Balance loans
- Declining prepayment (Fannie typically is yield maintenance, which is significantly more expensive than a % of the loan amount)
- Ability to float remaining term after fixed term up to 20 years total (Fannie typically has a balloon payment at end of fixed term)
- No replacement reserves required.
How do you qualify for this great financing?
Property must be:
- Conventional multifamily housing with 5 units or more
- 90% occupied for 90 days
Borrower must be:
- Experienced (12-24 months of multifamily ownership)
- Net Worth: Equal to the loan amount or greater
- Liquidity: Equal to 9 months of principal and interest or greater
We currently have 15 Freddie Small Balance Loans closing or in underwriting currently. Please reach out to me to learn more about the program and see if it is a fit for your next multifamily acquisition or refinance: jeng@oldcapitallending.com or 214-300-5035
