High-Leverage, Non-Recourse Apartment Loans From Freddie Mac
While Fannie Mae may purchase billions of dollars in apartment loans each year, it actually isn’t the largest government-sponsored enterprise (GSE) with a stake in the multifamily mortgage market. In recent years its sibling, Freddie Mac, has purchased even more apartment loans than Fannie, with a staggering $70 billion+ loans purchased in 2019 alone. Like Fannie Mae, most forms of Freddie Mac apartment financing are fully non-recourse and offer very low interest rates.
Just as Fannie does, Freddie offers a wide range of multifamily financing products for different product types, including financing for healthcare and senior living properties (such as assisted living centers), affordable properties (such as those using the Section 8 or Low Income Housing Tax Credit programs), student housing properties and manufactured housing communities. And just like Fannie Mae, Freddie Mac also offers a Green Advantage program, which rewards apartment developers and investors who make environmentally friendly upgrades to their properties.
Freddie Mac Apartment Loan Terms
- Loan Size: $1 million to $100 million+
- Loan Terms: Fixed and variable rate options with 3, 5, 7, 10 + year terms
- Amortization: Up to 30 years
- Leverage: Maximum 80% LTV; varies by loan type and individual borrower
- DSCR: Generally 1.25x Minimum DSCR; may be less for affordable properties
- Recourse: Most loans are non-recourse with typical carve-outs
- Rate Locks: Rate-locks are generally available from between 60 to 120 days before Freddie Mac purchases a loan. Fast Track Early Rate-Lock and Index Lock options are also available.
- Prepayment Penalties: Yield maintenance until securitization, followed by a 2-year lockout period. After that period, defeasance typically must be utilized to prepay a loan. All prepayment penalties are waived during the last 90 days of the loan term.
- Very competitive interest rates.
- High leverage; up to 80% LTV.
- Variety of rate-lock options.
- Selection of partial-term and full-term interest-only loan options available.
- Supplemental loans available.
- Freddie Mac is relatively selective when it comes to approving properties for financing. As a government-sponsored enterprise (GSE), it must conform to various regulations in order to stay compliant. For instance, in order to get approved, a borrower's property must generally be in very good condition and may need to be located in or near a major Metropolitan Statistical Area.
- Borrowers typically need to have strong financials, i.e. a net worth of at least 100% of the loan amount, with a substantial degree of liquidity.
What Are The Most Popular Freddie Mac Apartment Loan Programs?
Freddie Mac Small Balance Loans
The Freddie Mac Small Balance Loan (SBL) program is one of Freddie’s most popular apartment lending programs. The SBL program offers apartment financing in amounts between $1 million and $7.5 million. Like its competitor, the Fannie Mae Small Loan program, Small Balance Loans offer LTVs up to 80% and DSCRs as low as 1.25x. While Small Balance Loans don’t offer fully-amortizing loan terms, they do offer a wide selection of fixed and variable rate terms from 5 and 20 years, with 30-year amortizations. In general, the SBL program offers better rates and terms in larger markets, while Fannie Small Loans typically offer the best terms in smaller markets. The Small Balance Loan program also offers an early rate lock option to avoid interest rate risk.
Freddie Mac Fixed-Rate Loans
The Freddie Mac Fixed-Rate Loan program is one of the most versatile loan options for larger apartment investors. Offering apartment financing in amounts between $5 and $100 million, Fixed-Rate Loans are available for a variety of property types, including student housing, seniors housing and manufactured housing communities. These non-recourse loans are typically provided with terms between 5 and 10 years, with terms up to 30 years if the loan is not purchased for securitization. LTVs generally range from 65% to 80%, depending on loan term and amortization. Interest-only loans and those with longer terms are generally permitted somewhat less leverage.
Freddie Mac Floating-Rate Loans
Freddie Mac Floating Rate Loans are generally quite similar to Freddie Mac Fixed-Rate Loans, except for the fact that interest rates are variable instead of fixed. Like Fixed-Rate Loans, Floating-Rate Loans are available for seniors housing, student housing and manufactured housing communities. These non-recourse loans are offered in 5, 7 and 10-year terms in amounts between $5 million and $100 million. Smaller and larger loans may be considered on an individual basis.
Freddie Mac Student Housing Loans
Freddie Mac Student Housing Loans are specifically intended to help investors take advantage of the country’s quickly-growing student housing market. Like Freddie Mac Fixed-Rate Loans, Student Housing Loans are offered in amounts between 5 and $100 million, with terms generally ranging between 5 and 10 years. However, these loans have a few special requirements; each apartment unit needs to have a ratio of one bathroom for every two bedrooms, as well as a separate full kitchen. Apartment properties must also be located within a certain distance of a college or university (or multiple colleges and universities) with a student population of at least 10,000 and need to have a student tenant concentration of at least 50%.
Freddie Mac Seniors Housing Loans
Freddie Mac Seniors Housing Loans are a great way to finance seniors housing properties, including assisted living facilities, independent living communities and Alzheimer's / Dementia memory care facilities. Assets with a certain amount of skilled nursing patients are permitted, though this cannot exceed 20% of the property's overall income. Freddie Mac Seniors Housing Loans are non-recourse, generally start at $5 million, allow LTVs up to 75% and allow flexible terms between 5 and 30 years (with amortizations of up to 30 years).
Freddie Mac Green Advantage
The Freddie Mac Green Advantage Program provides better loan terms to borrowers who commit to reducing their property’s water and energy consumption. Specifically, the program allows eligible borrowers to increase their loan’s LTV by up to 5% while reducing their DSCR requirements by 0.05x. While the program requires borrowers to get a Green Assessment, which shows them how they might reduce their water and energy use, Freddie reimburses up to $3,500 of the assessment cost if the borrower actually closes their loan. In order to qualify, borrowers must commit to reducing at least 30% of their property's energy or water /sewer usage for the entire property. At least 15% of this must come from energy reduction, based on the property's Green Assessment.
Freddie Mac Targeted Affordable Housing (TAH) Express
The Freddie Mac Targeted Affordable Housing (TAH) Express loan can often be an ideal loan product for investors looking to purchase or refinance affordable housing properties. Eligible property types include stabilized properties with long-term HAP contracts, Section 8 vouchers, agreements that impose rent or income restrictions, tax abatements and LIHTC properties in year 11 or later of their compliance period. These loans are issued in amounts up to $10 million, with term options including 5, 7, 10 or 15-year fixed-rate loans or 5, 7 or 10-year floating-rate loans. Amortizations are 30 years. Leverage and debt service requirements depend upon the market in which a property is located; for Top Markets 80% maximum LTV and 1.20x minimum DSCR is permitted, while for Very Small Markets 70% maximum LTV and 1.35x minimum DSCR is allowed (with several gradients in between).