Freddie Mac Supplemental Financing

Freddie Mac Insured Supplemental Financing for Apartment Buildings and Multifamily Developments

For investors who already have a Freddie Mac loan on a multifamily property and are looking for additional financing-- perhaps to upgrade or rehabilitate the property, a Freddie Mac Supplemental Loan could be the perfect financing solution. Freddie Mac Supplemental Loans start at $1 million, come with an LTV allowance of up to 80%, and have the standard Freddie Mac nonrecourse execution, making them a powerful financing solution for investors and developers that require additional financing to enhance their multifamily projects.

There are two unique options when it comes to Freddie Mac Supplemental Loans. Split Supplemental Loans are originated at the same time as the original Freddie Mac loan, and Seasoned Supplemental Loans must be originated at least 12 months after the original mortgage or the last supplemental loan. Borrowers are allowed to take out multiple supplemental loans during the life of their original Freddie Mac loan, so long as there is a 12-month buffer period after the origination of the most recent loan.

Sample Freddie Mac Terms For Supplemental Loans

Size: Minimum loan amount $1 million, maximum amount dependent on LTV and DSCR requirements

Use: Supplemental financing for current Freddie Mac Multifamily borrowers

Terms: Vary, Split Supplemental loans must be conterminous with the first loan. Seasoned Supplemental Loans must be originated at least 12 months after the original mortgage or the last supplemental loan. Not available during the last 3 years of the first loan. Both fixed-rate and floating-rate loan options available.

Recourse:Non-recourse with standard “bad boy” carve-outs

MaximumLTV/MinimumDSCR:

  • 5-7 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%/1.30x
  • 7+ Year Loans:
    • Amortizing: 80%/1.25x
    • Partial Term Interest-Only: 80%/1.25x
    • Full Term Interest-Only: 70%1.35x

Eligible Borrowers: Current Freddie Mac borrowers with first loans currently in good standing. All other loans (both first loans and other supplemental loans), must have been originated at least 12 months ago and must have at least 3 years left on their terms.

Eligible Properties: Conventional multifamily housing, Student Housing, and Manufactured Housing Communities. Seniors Housing and Targeted Affordable Housing properties are also eligible but may have slightly different terms.

Prepayment Penalty: Yield maintenance

Timing: Loan usually take anywhere between 45 and 60 days from application to closing, depending on the timing of third-party reports and borrower due diligence

Assumability: Loans are fully assumable with lender approval and a 1% fee

Advantages:

  • Provides borrowers access to additional funds at a lower cost than refinancing
  • Early rate lock options available, typically between 60-120 days before purchase. Index lock and fast-track early rate lock options are also available.
  • Split supplemental loans are available; these are supplemental loans placed at the same time as the original loan
  • More than one supplemental loan is allowed
  • Loans are fully assumable with lender approval and a 1% fee

Disadvantages:

  • Requires third-party reports including Appraisal, Physical Needs Assessment, and Phase I Environmental Assessment. A Seismic Report may be also be required for properties in Seismic Zones 3 and 4.
  • Servicing fee required, based on the supplemental loan amount
  • Replacement reserves required
  • Freddie Mac application fee of $2,000 or 0.1% of the loan amount, whichever is greater
  • Typical lender application fee of $15,000 (covers third party reports and underwriting costs)
  • Typically involves between $8,000 to $12,000 in legal fees
  • Typically also requires an origination fee
  • Typically requires 2% rate lock paid at closing (refunded when Freddie Mac purchases loan, usually around 30 days after closing)