Freddie Mac Multifamily Floating-rate Financing

Floating-rate Loans for Acquiring and Refinancing Multifamily Developments Insured by Freddie Mac

For a flexible multifamily financing option with an adjustable-rate, there may be no better option than a Freddie Mac Floating-Rate Loan. Freddie Mac Floating-Rate Loans typically offer some of the lowest interest rates found anywhere and can sometimes be used effectively as a bridge loan, particularly for investors who plan to sell the property or get permanent financing in the near future. Floating-rate loans are available for property types, including standard multifamily housing, manufactured housing communities, seniors housing, and Targeted Affordable Housing (TAH) properties, including cash Low-Income Housing Tax Credit (LIHTC) Year 4-10 and 11-15 and Section 8 loans), but are not available for cooperative housing properties.

Freddie Mac Floating-Rate loans start at a minimum of $5 million ― although smaller loans can be approved at the lender’s discretion ― allow LTVs of up 80%, and have five-, seven-, and 10-year loan terms with amortizations of up to 30 years. These loans are nonrecourse, permit eligible mixed-use properties, and allow for both the acquisition and refinancing of multifamily properties.

Sample Freddie Mac Terms for Floating-Rate Loans

Size: $5 million to $100 million, although the lender can approve loans of smaller or larger amounts at their discretion

Terms: 5-, 7-, and 10-year terms, partial-term and full-term interest-only financing available; typically, interest-rate caps are required and can be purchased from a third-party; caps are not required for loans with a loan-to-value (LTV) ratio of 60% or less

Amortization: Up to 30 years

Interest Rate: Based on 1-month London Inter-bank Offered Rate (LIBOR) index

Eligible Properties:

Freddie Mac Floating-Rate Loans are available for:

  • Standard multifamily housing properties
  • Manufactured housing communities
  • Seniors housing developments
  • TAH properties, including cash LIHTC Year 4-10 and 11-15 and Section 8 loans

Note: Freddie Mac Floating-Rate Loans are not available for cooperative housing properties.

Eligible Borrowers:

  • Limited partnerships, tenancies in commons (TICs), corporations, or limited liability companies (LLCs)
  • For loans of more than $5 million, the borrower must be a single purpose entity (SPE) while for loans of $5 million or less, the borrower may be a single asset entity (SAE)
  • For TICs, there must be no more than 10 tenants in common, and each must be an SPE

Maximum LTV/Minimum Debt Service Coverage Ratio (DSCR):

  • 5- to 7-year Loans:
    • Amortizing: 75%/1.30x
    • Partial-term Interest-only: 75%/1.30x
    • Full-term Interest-only: 65%/1.40x
  • 7-year Loans:
    • Amortizing: 80%/1.25x
    • Partial-term Interest-only: 80%/1.25x
    • Full-term Interest-only: 70%/1.35x
  • 7+ Year Loans:
    • Amortizing: 80%/1.25x
    • Partial-term Interest-only: 80%/1.25x
    • Full-term Interest-only: 70%1.35x

Prepayment Options: Options include:

  • 1-year lockout, followed by 7 years of 1% prepayment penalty
  • 3% penalty in the first year, 2% penalty in the second year, followed by 6 years of 1% prepayment penalty
  • 5%, 4%, 3%, 2% step down for the first 4 years, followed by 4 years of 1% prepayment penalty
  • 7%, 6%, 5%, 4%, 3%, 2%, 1%, 1% step-down prepayment penalties (only available for 10-year capped floating rate loans)

NOTE: No prepayment penalties at all for the last 90 days of the loan

Recourse: Loans are non-recourse with standard “bad boy” carve-outs

Refinancing Test: No test needed for amortizing loans with a DSCR of at least 1.40x and an LTV of less than or equal to 65%; interest-only loans must pass a refinancing test before they are approved

Assumability: Loans are assumable with lender approval but require a 1% assumption fee paid to Freddie Mac; may also require an underwriting fee paid to the lender (typically $5,000)

Timing: Borrower will typically receive a commitment between 45 and 60 days after initial application; third-party report timing and borrower due diligence submission may speed up or slow down the process

Advantages:

  • Very competitive interest rates
  • Loans are nonrecourse
  • Certain mixed-use properties are eligible
  • Can be effectively used as a bridge loan in many situations

Disadvantages:

  • Requires third-party reports, including Phase I Environmental Assessment, Appraisal, and Physical Needs Assessment; Seismic Report may be required for properties in Seismic Zones 3 and 4
  • Requires replacement reserves
  • Application fees required: $2,000 or 0.1% of the loan amount ― whichever is larger ― for conventional first mortgages, $5,000 or 0.15% of the loan amount ― whichever is larger ― for seniors housing, $3,000 or 0.1% of the loan amount ― whichever is larger ― for TAH loans
  • Typically requires a loan origination fee
  • Typically requires between $8,000 and $12,000 in legal fees
  • Lender application fees also required, at an average of $15,000, including third-party reports, but may vary based on the specific lender
  • 2% rate lock fee usually required, which is refunded after Freddie Mac purchases loan, usually around 30 days post-closing