Flexible Freddie Mac Financing for the Renovation of Targeted Affordable Properties with 4% LIHTC Credits
One of the best ways to finance the acquisition, renovation, and refinancing of properties with 4% Low-Income Housing Tax Credits (LIHTC) credits is with a Freddie Mac Tax-Exempt loan. Still, if you're an investor or developer looking for a little more versatility, a Freddie Mac Flexible Tax-Exempt Loan could be an even better choice. Boasting a 3-year, interest-only floating-rate period, followed by a fixed-rate period of up to 15 years, the Flexible Tax-Exempt loan can significantly reduce payments during a property's rehab period. The underwriting criteria for Flexible Tax-Exempt Loans is still based on the traditional Tax-Exempt Loans, which means they offer maximum LTV allowances of up to 90% of a property's market value, and DSCRs as low as 1.15x.
2021 Sample Freddie Mac Terms For Flexible Tax-Exempt Loans
Size: Varies based on LTV and DSCR requirements.
Use: Financing for the acquisition or refinance of stabilized affordable multifamily properties.
Terms: Floating-rate, interest-only loan for 3 year period (during rehab), before converting to fixed-rate, amortizing financing for the rest of the loan (up to 18-year total loan term permitted.)
Interest Rate: Floating-rate based on SIFMA or LIBOR index
Interest-Rate Caps: Required for the floating-rate period of the loan
Amortization: Up to 30 years
Maximum LTV: 85% of adjusted value or 90% of market value (based on fixed-rate Freddie Mac Tax-Exempt Loans)
Minimum DSCR: 1.15x (based on fixed-rate Freddie Mac Tax-Exempt Loans)
Eligible Borrowers: Well-qualified Targeted Affordable Housing-approved borrowers.
Prepayment Penalty: 10-year lockout
Refinance Test: Based on the fixed-rate
Advantages:
- 3-year interest-only loan period reduces debt service payments during renovation (when property revenue may be significantly lower)
- Eligible mixed-use properties supported
- Does not change loan size or create additional proceeds
- Deals with 4% LIHTC credits can be underwritten to 1.15x DSCR
Disadvantages:
- No early rate locks or spread-locks allowed, standard delivery only
- No supplemental loans allowed during the floating-rate period