Additional Requirements for SBL Loans Under $1 Million

Unlike many types of multifamily financing, the Freddie Mac SBL program offers loans as low as $750,000. However, these ‘smaller’ Small Balance Loans come with additional requirements, due to the additional risk and expense they carry. Additional requirements include:

• Loans must be in a Top Market or Standard Market
• Eligible borrowers include:
  • Previous Freddie Mac Multifamily borrowers
  • Borrowers taking out multiple loans simultaneously
  • Borrowers who will are likely to engage Freddie Mac for 2+ additional loans within the next 12 months
  • Borrowers with significant multifamily experience in the area (2+ years local multifamily experience and 2+ multifamily properties owned)
  • Loans that were initially approved for $1 million+ but were later constrained by property NOI or other factors
• Properties must underwrite a vacancy of at least 5% and an expense ratio of at least 30%

Additionally:

• 10-15 bps will be added loans in Top Markets, while 15-20 bps will be added to loans in Standard Markets
• Cash-out refinances for these loans are typically subject to stricter leverage requirements (LTV/DSCR)
• Seller/servicers may not market Small Balance Loans less than $1 million
• Freddie Mac generally requires 3 additional business days for commitments and inspections

Related Questions

What are the requirements for a Freddie Mac Small Balance Loan?

The requirements for a Freddie Mac Small Balance Loan depend on the size of the loan. For loans under $1 million, additional requirements include:

• Loans must be in a Top Market or Standard Market
• Eligible borrowers include:
  • Previous Freddie Mac Multifamily borrowers
  • Borrowers taking out multiple loans simultaneously
  • Borrowers who will are likely to engage Freddie Mac for 2+ additional loans within the next 12 months
  • Borrowers with significant multifamily experience in the area (2+ years local multifamily experience and 2+ multifamily properties owned)
  • Loans that were initially approved for $1 million+ but were later constrained by property NOI or other factors
• Properties must underwrite a vacancy of at least 5% and an expense ratio of at least 30%
• 10-15 bps will be added loans in Top Markets, while 15-20 bps will be added to loans in Standard Markets
• Cash-out refinances for these loans are typically subject to stricter leverage requirements (LTV/DSCR)
• Seller/servicers may not market Small Balance Loans less than $1 million
• Freddie Mac generally requires 3 additional business days for commitments and inspections

For loans between $6 million and $7.5 million, additional requirements include:

• Loans must be in a Top or Standard Market
• No more than 100 units
• Borrowers must order additional third-party reports, including a survey report and a zoning report
• Minimum DSCR of 1.25x
• Borrowers must form a Single Asset Entity (SAE)

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

What are the benefits of a Freddie Mac Small Balance Loan?

The Benefits of a Freddie Mac Small Balance Loan include:

• 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)

What types of properties are eligible for a Freddie Mac Small Balance 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

What are the interest rates for a Freddie Mac Small Balance Loan?

Freddie Mac Small Balance Loan Interest Rates range from 4.08% to 5.16%. Rates vary between Top, Standard, Small, and Very Small Markets. In addition, pricing is further broken down by region, as Freddie Mac has divided the U.S. into 5 distinct regions for the purposes of SBL pricing. More information can be found here.

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

• Loan Amount: $1 million minimum, $7.5 million maximum
• Loan Uses: Acquisitions or refinances
• Loan Terms: 20-year hybrid ARM with initial 5, 7, or 10-year fixed-rate period, OR 5, 7, or 10-year fixed-rate loan. ARMs typically based on 6-month LIBOR with up to 1% rate adjustments every 6 months. Lifetime cap set 5% over starting rate.
• Amortization: Up to 30 years, partial interest-only options available, full-term interest-only options may also be available in certain circumstances.
• Interest Rates: Vary, but lower for properties in Top and Standard Markets and higher for properties in Small and Very Small Markets.

Advantages of the Freddie Mac Small Balance Loan 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

How long does it take to get approved for a Freddie Mac Small Balance Loan?

The approval process for a Freddie Mac Small Balance Loan typically takes between 30 and 45 days, depending on the complexity of the loan and the borrower's financial situation. The loan application process is streamlined, and borrowers can expect to receive a decision within a few weeks.

For loans over $6 million, additional requirements may be necessary, including a survey report, zoning report, and the formation of a Single Asset Entity (SAE). These additional requirements may add to the approval time.