Property Condition Reports for Freddie Mac Small Balance Loans
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Property Condition Reports, sometimes also referred to as Physical Needs Assessments (PNAs), are one of the third-party reports required for the Freddie Mac SBL application process. Just like Environmental Site Assessments (ESAs), Property Condition Reports generally need to be compiled by an experienced testing and/or engineering firm. While, like ESAs, the contents of a Property Condition Report are mainly the concern of the testing firm, the lender, and Freddie Mac, borrowers should still understand them, as they can have a major impact on whether an Optigo Small Balance Loan is approved.
In a Property Condition Report, each part of the property must be analyzed and ranked from excellent to poor, based on its current condition. Below, we have included a shortened outline of the details of a comprehensive Property Condition Report in order to enhance your understanding of the reporting process:
Mortgage, Consultant, and Property Information
This section contains general information about the property, including the address, the reporting date, the age of the buildings, the name of the inspector and the inspection company, and information about the lender.
Building and Material Characteristics
This section contains basic information about the building, including:
- Building type
- Envelope
- Mechanicals (HVAC)
- Amenities (site)
- Construction type
- Elevators
- Electrical
- Mold
- Foundation type
- Mechanicals (plumbing)
- Electrical
- Mold
- Problem materials/equipment
- Life/Safety devices
- Interior
- Parking
- Unit Type
- Unit Type Number of units
- Number of units inspected
- Carports
- Garages
- Storage units
- Maintenance structures
- Carports
- Roadways/Parking lots
- Site Utilities
- Site fences
- Swimming pool and/or spa
- Hot and cold water distribution
- Domestic water heaters
- Elevators
- Fire Extinguishers
- Unit entry door(s) and frame(s)
- Flooring
- Cabinetry
- Countertops and sinks
- Appliances
- Bathroom improvements
- Foundation (structural)
- Exterior walls (paint/finish)
- Doors and frames
- Common area improvements, including:
- Community facilities kitchen
- Community facilities appliances
- Community clothes dryers
- Critical and Priority Repairs: Critical and priority repairs are defined as property repairs that need to be completed for the property to have a reasonable level of habitability and marketability. In general, these repairs will need to be completed before Freddie Mac will agree to approve a loan.
- PR-90 Repairs: PR-90 repairs are generally not considered critical, but are still very important, and will need to be completed within 90 days in order for Freddie Mac to continue with the loan transaction. PR-90 repairs typically include ongoing property damage issues, as well as imminent safety issues.
- Priority Repairs: Priority repairs should be completed as quickly as possible but are not as important as PR-90 repairs. Priority repairs include any building or property aspects that violate federal, state, or municipal laws or zoning regulations, as well as violations of accessibility guidelines (including the ADA), minor fire safety issues, or serious maintenance issues that have not been recently addressed.
- Operational Repairs: These are the least pressing repairs, but are still expected to be completed within a reasonable timeline. They generally include minor deferred maintenance, minor accessibility issues, and other similar repairs.
- Replacement Reserve Items: These are substantial repairs that the inspector believes will be needed over the term of the loan, as well as two years after. To calculate this, inspectors must look at the estimated useful life (EUL) of a building system/component, and the remaining useful life (RUL) of that particular system.
- Routine Repairs and Maintenance: These are defined as ordinary and everyday repairs that are expected to be made throughout the term of the loan. Generally, these repairs will be done by onsite staff members and will cost less than $3,000 per item.
What is a Property Condition Report (PCR) for Freddie Mac Small Balance Loans?
A Property Condition Report (PCR), sometimes also referred to as a Physical Needs Assessment (PNA), is one of the third-party reports required for the Freddie Mac SBL application process. It is compiled by an experienced testing and/or engineering firm and examines each part of the property in order to determine the current condition of each element of the property. The report will examine the site, building exteriors, and unit interiors, looking at components such as landscaping, electrical and HVAC systems, cabinets, appliances, doors, windows, and building foundations. It will also check for obvious structural or safety issues, such as mold or improperly installed fire safety equipment. All needed repairs will be classified into several categories, ranging from urgent to routine. In addition to being required by a lender and Freddie Mac, property condition reports are used to determine the amount of replacement reserves that borrowers will need to allocate on an annual basis.
What information is included in a PCR for Freddie Mac Small Balance Loans?
A PCR (Property Condition Report) is a document that is used to assess the condition of a property. It is typically required for Freddie Mac Small Balance Loans and includes information such as the age of the building, the condition of the roof, the condition of the HVAC system, and any other major repairs that may be needed. The PCR also includes a detailed description of the property, including the number of units, the size of the units, and the amenities offered.
What are the benefits of obtaining a PCR for Freddie Mac Small Balance Loans?
The benefits of obtaining a PCR (Property Condition Report) for Freddie Mac Small Balance Loans 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 are the requirements for obtaining a PCR for Freddie Mac Small Balance Loans?
The Freddie Mac SBL program requires a Property Condition Report (PCR) for all loans. The PCR must be completed by a qualified inspector and must include a physical inspection of the property, as well as a review of the property’s condition and any necessary repairs. The PCR must also include a review of the property’s compliance with applicable building codes and regulations. Additionally, the PCR must include a review of the property’s environmental condition, including any hazardous materials or other environmental hazards.
For more information, please see https://apartment.loans/freddie-mac-small-balance-loans/.
What are the costs associated with obtaining a PCR for Freddie Mac Small Balance Loans?
The costs associated with obtaining a PCR for Freddie Mac Small Balance Loans include a $7,000 application fee and a Freddie Mac processing fee of 0.1% of the loan amount. Additionally, loans under $1 million require 10-15 bps to be added to loans in Top Markets, while 15-20 bps will be added to loans in Standard Markets. Source 1, Source 2.
Unit Mix
Site Analysis
The site analysis component of the Property Condition Report examines various physical aspects of the property, including:
Mechanical and Electrical
Another part of the report involves a review of the building’s mechanical and electrical systems, including:
Dwelling Units
The dwelling units section of the report examines individual aspects of units on the property, including:
Structural, Building Envelope and Common Area Furniture, Fixtures and Equipment
Yet another part of the report will examine the condition and integrity of the building’s structure, envelope, and external fixtures, including:
Repair Classifications
Required repairs listed on Property Condition Reports are typically classified into four different categories, as detailed below:
Repairs can also be classified into two other categories, including: