Freddie Mac Optigo SBL vs. Fannie Mae Small Loans: What’s the Difference?
Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!Freddie Mac Small Balance Loans vs. Fannie Mae Small Loans
When it comes to small balance agency loans, the Freddie Mac SBL program used to be the only option. However, several years ago, Fannie Mae released its Small Loan program, which has become an increasingly viable competitor to Freddie’s SBL program. In general, Freddie Mac Small Balance Loans are often a better choice for properties in larger markets, while Fannie Mae Small Loans are better suited for properties in smaller markets.
Unlike Freddie’s SBL program, Fannie Mae Small Loans offer fixed-rate terms up to 30 years, though a variety of other fixed and variable-rate options are also available. Fannie Mae also recently increase the maximum size for Small Loans; previously, they were limited to $3 million in the majority of markets (and $5 million in large markets) but they have been increased to $6 million nationwide. Unlike the SBL program, minimum DSCR for Fannie Mae Small Loans is set at 1.25x for all markets, which is one of the reasons why this product may be better for properties outside major MSAs.
While Fannie Mae’s DSCR requirements may be better for some borrowers, Fannie Mae Small Loans have stricter credit requirements than Freddie Mac Small Balance Loans. In particular, Fannie Mae Small Loan borrowers need a minimum credit score of 680, while Freddie Mac SBL borrowers may have a credit score as low as 650. Tenant restrictions are also somewhat stricter; while the SBL limits student and military tenant concentrations to 50% or less, Fannie Mae Small Loans limit these concentrations to 20%. Plus, Fannie Mae is also somewhat stricter when it comes to commercial space; properties financing by Fannie Mae Small Loans generally must derive no more than 20% of their effective gross income from commercial tenants, while for Freddie Mac, this limit is 25%. Finally, supplemental financing is a little easier to come by for Small Loans, as they are eligible for Fannie Mae Supplemental Financing 12 months after origination.
Related Questions
What are the key differences between Freddie Mac Optigo SBL and Fannie Mae Small Loans?
The key differences between Freddie Mac Optigo SBL and Fannie Mae Small Loans are:
- Freddie Mac Small Balance Loans have a maximum loan amount of $7.5 million, while Fannie Mae Small Loans have a maximum loan amount of $6 million.
- Freddie Mac Small Balance Loans have a maximum LTV of 80%, while Fannie Mae Small Loans also have a maximum LTV of 80%.
- Freddie Mac Small Balance Loans have a maximum term of 20 years, while Fannie Mae Small Loans have a maximum term of 30 years.
- Both Freddie Mac Small Balance Loans and Fannie Mae Small Loans are non-recourse.
- Freddie Mac Small Balance Loans have a DSCR requirement that is market dependent, while Fannie Mae Small Loans have a minimum DSCR requirement of 1.25x.
- Freddie Mac Small Balance Loans have a minimum credit score requirement of 650, while Fannie Mae Small Loans have a minimum credit score requirement of 680.
- Freddie Mac Small Balance Loans allow for a tenant concentration of up to 50% student or military tenants, while Fannie Mae Small Loans limit this to 20%.
- Freddie Mac Small Balance Loans allow for carve-out waivers for properties that have a 65% or lower LTV and a 1.40x or higher DSCR, while Fannie Mae Small Loans do not.
- Fewer lenders issue Freddie Mac Small Balance Loans than Fannie Mae Small Loans.
- Section 8 properties are not eligible for the Freddie Mac SBL program, while Fannie Mae Small Loans are eligible.
What are the advantages of using Freddie Mac Optigo SBL for apartment loans?
The advantages of using Freddie Mac Optigo SBL for apartment loans include:
- Flexible financing terms
- Generous terms and leverage
- Loan size between $1 million and $7 million
- Can be used for acquisition or refinance
- Unit requirements of 5+ units
- LTV allowance of 80% for purchases and refinances in top markets, 75% for purchases and 70% for refinances in small and very small markets
- No tax return requirement
- Interest options of a 20-year hybrid ARM with a 5-, 7-, or 10-year fixed-rate loan period, or a 5-, 7-, or 10-year fixed-rate loan
- DSCR minimum of 1.20 in top markets, 1.25 in standard markets, 1.30 in small markets, and 1.40 in very small markets
- Assumability with lender approval and 1% fee
- Cash-out refinances available
- Step down, yield maintenance, and soft step down prepayment options available
For more information, please see this page.
What are the advantages of using Fannie Mae Small Loans for apartment loans?
Fannie Mae Small Loans offer a number of advantages for borrowers looking for apartment financing. These loans permit borrowers to utilize 30-year fully-amortizing loan terms, meaning that they may not need to refinance their loan before the property is fully paid off. In addition, these loans can be used for manufactured housing communities and housing cooperatives, while SBL loans typically cannot. Rates are generally lower in smaller markets when compared to the SBL program, which can be extremely beneficial for those looking to finance properties outside major MSAs. Additionally, Fannie Mae Small Loans are non-recourse (in most cases), have fixed-rate and highly flexible floating rate options, and require no tax returns. Borrowers can finance up to 3% of the loan’s closing costs, and there are no processing fees without written approval.
What are the eligibility requirements for Freddie Mac Optigo SBL loans?
The eligibility requirements for Freddie Mac Optigo SBL loans include:
- Loan Size: Between $1 million and $7 million
- Loan Purpose: A loan can be used for acquisition or refinance.
- Unit Requirements: 5+ units
- Leverage:
- Top Markets: 80% maximum LTV allowance for purchases and refinances
- Standard Markets: 80% maximum LTV allowance for purchases and refinances
- Small Markets: 75% maximum LTV allowance for purchases, 70% for refinances
- Very Small Markets: 75% maximum LTV allowance for purchases, 70% for refinances
- Documentation: No tax return requirement
- Interest Options:
- A 20-year hybrid ARM with a 5-, 7-, or 10-year fixed-rate loan period.
- 5-, 7-, or 10-year fixed-rate loan
- DSCR:
- Top Markets: Minimum 1.20 DSCR
- Standard Markets: Minimum 1.25 DSCR
- Small Markets: Minimum 1.30 DSCR
- Very Small Markets: Minimum 1.40 DSCR
- Assumability: Assumable (with lender approval and 1% fee)
- Cash Out: Cash-out refinances are available
- Prepayment: Step down, yield maintenance, and soft step down options are available
For more information, please refer to this term sheet.
What are the eligibility requirements for Fannie Mae Small Loans?
The Fannie Mae Multifamily Small Loan Program has a few understated caveats and requirements that borrowers should consider. Most importantly, there is zero-tolerance when it comes to borrowers being able to meet the minimum requirements for net worth and liquidity. Being able to meet those stated minimums can make or break the entire deal.
The program has a minimum expenditure requirement for specific expense line items like maintenance, payroll, management, and replacement reserves. Another detail worth noting is that the quality and condition of the subject property are of high importance. A property condition inspection is required for the deal, and any discovered deficiencies must be addressed and fixed before the transaction can close.
There are some lesser-known criteria for subject properties under the small loan program as well. Properties located in seismic zones 3 & 4 with subterranean or “tuck away” parking structures require a PML report. Properties with unreinforced masonry construction, as well as properties built before 1980 that have not had seismic reinforcements or retrofits completed are generally ineligible for financing. Non-Contiguous properties are eligible with a Fannie Mae waiver.
A Fannie Mae waiver is also required for phased properties as well. Properties that belong to an HOA or are a part of a PUD are typically ineligible. Borrowers should be aware that absentee ownership of any property financed through the program requires professional management.
In addition to the facts above, here are a few more things to take into consideration when shopping for a Fannie Mae Multifamily Small Loan:
- Even though the loans are non-recourse, key principals must sign an “exceptions to non-recourse” document, and face some liability
- Borrowing entities and key principals must undergo rigorous lien, litigation, and bankruptcy searches.
- There is a higher insurance expense in this type of transaction due to the higher coverage requirements in the secondary market.
- The Fannie Mae waiver that is required for non-contiguous and phased properties is difficult to obtain.
The following table outlines the eligibility requirements for Fannie Mae Small Loans:
Loan Size Unit Requirements Leverage Closing Costs Documentation Interest Options DSCR From $1 million to up to $6 million 5 unit minimum 80% maximum LTV allowance Borrowers can finance up to 3% of closing costs No tax return requirement Fixed and hybrid ARM interest options available Minimum 1.25 DSCR For more information, please refer to this term sheet.