Does the Freddie Mac SBL Program Allow For Commercial Space?
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The Freddie Mac Optigo Small Balance Loan program permits commercial space up to 25% of a property’s gross income. However, this is not necessarily a hard and fast rule, and exceptions are made on occasion. Despite this, to qualify for an exception, borrowers will generally have to prove that the commercial space is likely to remain continuously occupied and that its use will provide a significant benefit to the building’s residents, as well as the surrounding community. For instance, a grocery store or daycare center located on the first floor of a building might be considered beneficial, while a bar would likely not be.
Related Questions
What is the Freddie Mac SBL Program?
The Freddie Mac Small Balance Loan (SBL) Program is a loan program offered by Freddie Mac to assist small business owners in securing liquidity for their investments. The program ensures approved sellers and servicers have a platform dedicated to selling loans for smaller rental properties. Qualifying projects include multifamily properties with loans that range from $1 million to $7.5 million. Some of the key benefits and features of the program are competitive pricing, less documentation, a streamlined underwriting process, and either hybrid ARM or fixed-rate loan products.
In addition to the property requirement, servicers and sellers must also meet a specific set of guidelines. These include collateral, undergoing a rigorous assessment, B-piece purchase, loss sharing, repurchasing of delinquent SBLs and origination of at least $50 million per quarter.
What types of properties are eligible for the Freddie Mac SBL Program?
Eligible Property Types for the Freddie Mac SBL Program include multifamily and apartment properties with five or more units. This includes:
- Properties with commercial space that does not comprise more than 25% of the property’s gross income
- Independent living properties for seniors without resident services
- LIHTC (Low Income Housing Tax Credits), with land restrictions in the extended use period or the final 24 months of the initial restriction period (to qualify, eligible LIHTC properties must have 75 units or less and get special Freddie Mac approval)
- Other regulatory restrictions that limit income/rent (funds must be disbursed)
- Tax abatement properties
- Tenant-based housing voucher properties
- Buildings can have local rent subsidies for 10% or less units, as long as tenant eligibility certification is not required
- Cooperatives (must be located in New York City or Long Island)
In contrast, properties that are ineligible for the SBL program include:
- LIHTC properties with more than 24 months left on their Land Use Restrictive Agreement
- Tax-exempt bonds Interest Reduction Payments (IRPs)
- Properties with a greater than 50% concentration of student or military housing
- Properties with Section 8 contractors or other project-based HAP contracts
- Master lease HTC (Historic Tax Credit) properties
What are the requirements for the Freddie Mac SBL Program?
The Freddie Mac SBL Program requires servicers and sellers to meet a specific set of guidelines. These include collateral, undergoing a rigorous assessment, B-piece purchase, loss sharing, repurchasing of delinquent SBLs and origination of at least $50 million per quarter. Qualifying projects include multifamily properties with loans that range from $1 million to $7.5 million. The program also ensures approved sellers and servicers have a platform dedicated to selling loans for smaller rental properties. The required DSCR for the Freddie Mac SBL Program is 1.20.
What are the benefits of the Freddie Mac SBL Program?
The Benefits and Disadvantages of Freddie Mac Small Balance Loans: Advantages of the Freddie Mac SBL Program
Advantages of the Freddie Mac Small Balance Loan program include:
- Flexible loan sizes, starting at just $750,000 and going up to $7.5 million
- Low interest rates, starting from just 4.51%
- High leverage, up to 80% LTV
- Generous DSCR minimums, as low as 1.20x
- 30-year amortizations, keeping payments low for borrowers
- Partial and full-term interest-only loans offered
- Cash-out refinancing offered for eligible borrowers
- Multiple fixed rate term options (with up to 10-year terms) and hybrid ARM options (with 20-year terms)
- Soft step-down prepayment penalties allowed
- 60-120 day rate commitments offered
- Loans are fully assumable with 1% fee and Freddie Mac approval
- Financing is non-recourse (with individual exceptions for certain loans)
How can I apply for the Freddie Mac SBL Program?
To apply for the Freddie Mac SBL Program, you must first meet the property requirements and the servicer and seller requirements. The servicer and seller requirements include collateral, undergoing a rigorous assessment, B-piece purchase, loss sharing, repurchasing of delinquent SBLs and origination of at least $50 million per quarter. You can find more information about the requirements here.
Once you have met the requirements, you can apply for the program. The goal of the program is to make the process as easy as possible for SBL sellers and servicers without reducing the quality of the loans. Competitive pricing, less documentation, a streamlined underwriting process, and either hybrid ARM or fixed-rate loan products are the benefits of this program.