Freddie Mac HUD Section 8 Financing Highlights

• Optigo Targeted Affordable Housing (TAH) and Optigo Conventional properties with Section 8 project-based contracts are eligible for cash loans

• Properties with Section 8 tenant-based vouchers are eligible for cash loans for conventional sellers

• TAH sellers can obtain credit enhancement for bonds and funding for tax-exempt loans (TELs)

• Borrowers must have demonstrated experience in owning and managing similar Section 8 properties

• Eligible mixed-use properties are supported

Sample Freddie Mac Terms for HUD Section 8 Loans

Size: Varies

Terms: 5-year minimum and 15-year maximum for cash loans; 10-year minimum and 30-year maximum for tax-exempt financing

Amortization: Up to 30 years for cash loans; up to 35 years for tax-exempt financing

Maximum LTV: 80% for non-LIHTC properties; 90% for LIHTC properties

Minimum DSCR:

• Properties with Section 8 Housing Assistance Program (HAP) contracts in above-average markets, with physical vacancies of 5% or less: 1.20x
• Properties with new LIHTC credits: 1.15x
• Some excess rent may be underwritten for above-market, long-term LIHTC contracts

Prepayment Options: Defeasance for non-LIHTC properties; yield maintenance for LIHTC properties

Eligible Borrowers: Need previous Section 8 ownership/management experience

Eligible Properties: High-rise properties, midrise properties, and garden apartment properties; must have a Section 8 project-based contract or voucher

Sellers/Servicers:

• Cash loans with Section 8 project-based contracts: TAH and Freddie Mac Multifamily Approved Conventional Sellers
• Cash loans with Section 8 tenant-based vouchers: Freddie Mac Multifamily Approved Conventional Sellers
• Tax-exempt financing: TAH sellers only

Section 8 Subsidies:

• Eligible Section 8 subsidies include:
• Project-based subsidies: Rental assistance tied to a specific property Properties get cash payments determined by the number of tenants living in eligible units
• Tenant-Based subsidies: Rental assistance tied to a specific tenant, not a specific property; properties get cash payments determined by the number of qualifying occupants, such as those with vouchers, which include:
  • Regular vouchers: Most vouchers are regular vouchers, which limit payments to HUD's fair market rent in a particular area where the property is located
  • Enhanced vouchers: Enhanced Section 8 vouchers are provided to tenants living in properties that used to receive project-based subsidies, including properties where the owner has either determined to leave the Section 8 program or has prepaid their government-insured mortgage; for tenants living in these properties, enhanced vouchers help them pay for rent increases, which means these vouchers are typically based on the actual rent of the property

Subordinate Financing: Permitted with additional requirements and analysis

Advantages:

• Very competitive interest rates
• Loans are nonrecourse
• Certain mixed-use properties are eligible

Disadvantages:

• Typically requires third-party reports, including appraisal, Phase I Environmental Assessment, and physical condition assessment
• Requires application fees, commitment fees, and other fees

In this article:

1. Loans for Section 8 Housing Assistance Program Project-based Contract or Tenant-based Voucher Properties Insured by Freddie Mac
2. Freddie Mac HUD Section 8 Financing Highlights
3. Sample Freddie Mac Terms for HUD Section 8 Loans
4. Get Financing