The Freddie Mac Small Balance Loans program permits loan sizes between $750,000 and $7.5 million. For loans between $750,000 and $1 million, they must be in a Top Market or Standard Market, and borrowers must have a FICO credit score of at least 650. For loans between $6 million and $7.5 million, they must be in a Top or Standard Market, have no more than 100 units, and require a borrower to order additional third-party reports, including a survey report and a zoning report. Additionally, loans of more than $6 million also require a minimum DSCR of 1.25x, and require that borrowers form a Single Asset Entity (SAE).

During the underwriting process, a lender decides whether offering a loan to a borrower is a suitable risk, based on their estimated ability to repay. When examining a commercial loan application, lenders generally look at credit, capacity, and collateral-- often referred to as the “three C’s” of underwriting. In terms of credit, borrowers for the Optigo Small Balance Loan program will usually need to have a FICO credit score of at least 650. Capacity, which is defined by DSCR, varies between 1.20x (for amortizing loans in Top Markets) to 1.50x (for full-term interest-only loans in Small Markets). Since Small Balance Loans are non-recourse, the property itself is generally considered to be sufficient collateral for the loan.

Eligible Property Types for the Freddie Mac SBL Program include multifamily and apartment properties with five or more units. This includes:

• Properties with commercial space that does not comprise more than 25% of the property’s gross income
• Independent living properties for seniors without resident services
• LIHTC (Low Income Housing Tax Credits), with land restrictions in the extended use period or the final 24 months of the initial restriction period (to qualify, eligible LIHTC properties must have 75 units or less and get special Freddie Mac approval)
• Other regulatory restrictions that limit income/rent (funds must be disbursed)
• Tax abatement properties
• Tenant-based housing voucher properties
• Buildings can have local rent subsidies for 10% or less units, as long as tenant eligibility certification is not required
• Cooperatives (must be located in New York City or Long Island)

In contrast, properties that are ineligible for the SBL program include:

• LIHTC properties with more than 24 months left on their Land Use Restrictive Agreement
• Tax-exempt bonds Interest Reduction Payments (IRPs)
• Properties with a greater than 50% concentration of student or military housing
• Properties with Section 8 contractors or other project-based HAP contracts
• Master lease HTC (Historic Tax Credit) properties

Sample Terms for the Freddie Mac Small Balance Loan in 2023: Eligible Properties include:

• Multifamily: 5+ unit market-rate multifamily properties. For loans larger than $6 million, properties with more than 100 units must be approved by Freddie Mac.
• Non-Contiguous Properties: Allowed if within same zip code and manageable as a single asset.
• Occupancy: 90% for past 90 days (exceptions down to 85% and down to 30 days for new construction). 85% occupancy may also apply to properties with 30+ units, or acquisitions with no history of serious crime, or that have been recently taken over by sophisticated management.
• Mixed Use: Available subject to no more than 40% non-residential income and no more than 40% of net rentable area.
• Affordable:
  • Low-Income Housing Tax Credit (LIHTC) properties with Land Use Restriction Agreements (LURAs) that are in either the final 24 months of the initial compliance period or the extended use period (investor must have exited for property to be eligible).
  • Properties with tenant-based housing vouchers, and properties with local rent subsidies for 10% or fewer units where the subsidy is not contingent on the owner’s initial or ongoing certification of tenant eligibility are also eligible.
• Ineligible:
  • Seniors housing with residential services
  • Student housing (greater than 50% concentration)
  • Military housing (greater than 50% concentration)
  • Properties with Housing Assistance Program (HAP) Section 8 contracts and other project-based housing assistance payment contracts
  • LIHTC properties with LURAs in compliance years 1-12
  • Tax-exempt bonds Interest Reduction Payments (IRPs)
  • Historic Tax Credit (HTC) properties with a master lease structure

The SBL program offers limited apartment financing for non-contiguous subject properties through its Linked Property Program. Only properties in Top and Standard market tiers are eligible for the linked program. Each property must have no less than 5 units, and there must be a minimum of 10

Freddie Mac Small Balance Loans are generally not available for age-restricted communities or seniors housing. This includes independent living facilities with resident services, skilled nursing and assisted living centers, intermediate care facilities, and memory care facilities specifically intended for Alzheimer's and Dementia patients. However, Optigo Small Balance Loans are generally available for independent living communities without resident services.

In regards to the Freddie Mac Small Balance Loan program, independent living communities are eligible for financing, as long as they do not offer any resident services. Communities that offer resident services may be financed by Freddie Mac Seniors Housing Loans. Looking beyond the scope of Freddie Mac multifamily loans, these communities can also be financed with Fannie Mae Seniors Housing Loans, or the HUD/FHA 232/223(f) loan program.

The advantages of Freddie Mac Small Balance Loans include:

• Up to 80% LTV allowance
• Streamlined application process
• Loans are non-recourse
• Interest-only options
• 30-year amortizations
• Variety of hybrid ARM and fixed-rate options available
• Loans are assumable with approval and 1% fee
• 60-120 day rate locks typically available
• Flexible loan sizes, starting at just $750,000 and going up to $7.5 million
• Low interest rates, starting from just 4.51%
• High leverage, up to 80% LTV
• Generous DSCR minimums, as low as 1.20x
• 30-year amortizations, keeping payments low for borrowers
• Partial and full-term interest-only loans offered
• Cash-out refinancing offered for eligible borrowers
• Multiple fixed rate term options (with up to 10-year terms) and hybrid ARM options (with 20-year terms)
• Soft step-down prepayment penalties allowed
• 60-120 day rate commitments offered
• Loans are fully assumable with 1% fee and Freddie Mac approval
• Financing is non-recourse (with individual exceptions for certain loans)

The Disadvantages of Freddie Mac Small Balance Loans include:

• Upfront application fees required
• Certain property types are not eligible, including seniors housing, student housing, and many types of affordable properties