Top Markets for Freddie Mac Small Balance Loans
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!Top Markets for the Freddie Mac SBL Loan Program
In the context of the Freddie Mac Small Balance Loan program, cities across the U.S. are divided into Top Markets, Standard Markets, Small Markets, and Very Small Markets. Top Markets are the largest and most desirable, and hence the least risky for lenders and Freddie Mac. Small and Very Small Markets are the riskiest, and therefore loans for these properties require higher Debt Service Coverage Ratios.
Properties in Top Markets must have DSCR of at least 1.20x, and include Los Angeles, the NYC/New Jersey Metro Area, Chicago, Washington DC, San Francisco, Boston, San Diego, Miami, Sacramento, Orange County, Portland, San Jose,, Minneapolis, Dallas, Seattle, Denver, and Oakland.
Related Questions
What are the best markets for Freddie Mac Small Balance Loans?
The best markets for Freddie Mac Small Balance Loans are Los Angeles, the NYC/New Jersey Metro Area, Chicago, Washington DC, San Francisco, Boston, San Diego, Miami, Sacramento, Orange County, Portland, San Jose, Minneapolis, Dallas, Seattle, Denver, and Oakland. These markets are considered Top Markets and require a Debt Service Coverage Ratio (DSCR) of at least 1.20x.
For more information, please see the following sources:
What are the benefits of investing in Freddie Mac Small Balance Loans?
The Freddie Mac Small Balance Loan program offers a great degree of flexibility for borrowers, as they offer fixed-rate, floating-rate, and interest-only loan options with a variety of term lengths and amortization periods. Additionally, they allow up to 80% LTV allowance, have a streamlined application process, are non-recourse, offer interest-only options, have 30-year amortizations, and are assumable with approval and 1% fee. Furthermore, 60-120 day rate locks are typically available. Source
What are the requirements for obtaining a Freddie Mac Small Balance Loan?
The requirements for obtaining a Freddie Mac Small Balance Loan vary depending on the size of the loan. For loans between $750,000 and $1 million, the loan must be in a Top Market or Standard Market, and the borrower must meet additional requirements such as having previous Freddie Mac Multifamily experience, taking out multiple loans simultaneously, or having significant multifamily experience in the area. For loans between $6 million and $7.5 million, the loan 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 require a minimum DSCR of 1.25x, and require that borrowers form a Single Asset Entity (SAE).
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.
What are the advantages of using Freddie Mac Small Balance Loans for commercial real estate investments?
The Freddie Mac Small Balance Loan program offers a great degree of flexibility for borrowers, as they offer fixed-rate, floating-rate, and interest-only loan options with a variety of term lengths and amortization periods. It also offers up to 80% LTV allowance, a streamlined application process, non-recourse loans, interest-only options, 30-year amortizations, a variety of hybrid ARM and fixed-rate options available, loans that are assumable with approval and 1% fee, and 60-120 day rate locks typically available.
The borrower costs that typically plague small balance loans have been addressed by Freddie Mac, with greatly compressed costs that create a noticeable difference to borrowers. The streamlined application process for the small balance loan is another major benefit of choosing the program for apartment financing, with borrowers with credit scores of 650 and above eligible for the SBL without the need to provide tax returns, and rate locks that can span anywhere between 60-120 days. The small balance loan can be utilized for both acquisitions as well as refinances.
What are the risks associated with investing in Freddie Mac Small Balance Loans?
The risks associated with investing in Freddie Mac Small Balance Loans include the potential for rising interest rates, the need to pay upfront application fees, and the inability to finance certain types of properties, such as seniors housing, student housing, and many types of affordable properties. Additionally, the loan terms are non-recourse, meaning that the borrower is not personally liable for any losses incurred by the loan. This can be beneficial in some cases, but it also means that the lender has less recourse if the loan goes into default.
For more information, please see the following sources: