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Apartment Loans Secrets
1 min read
by Content Team

Underwriting for Freddie Mac Small Balance Loans

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Underwriting in Relation to the Freddie Mac SBL Program

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.

Related Questions

What are the key underwriting criteria for Freddie Mac Small Balance Loans?

The key underwriting criteria for Freddie Mac Small Balance Loans include credit, capacity, and collateral. 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.

Additional requirements for SBL Loans Under $1 Million 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), and 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.

Advantages of Freddie Mac Small Balance Loans include 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.

What are the advantages of Freddie Mac Small Balance Loans?

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)

What are the eligibility requirements for Freddie Mac Small Balance Loans?

The eligibility requirements for Freddie Mac Small Balance Loans 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 maximum loan amounts for Freddie Mac Small Balance Loans?

The maximum loan amount for Freddie Mac Small Balance Loans is $7.5 million. Source 1 and Source 2.

What are the typical interest rates for Freddie Mac Small Balance Loans?

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. (https://apartment.loans/posts/interest-rates)

Sample Terms for the Freddie Mac Small Balance Loan in 2023 include a 20-year hybrid ARM with initial 5, 7, or 10-year fixed-rate period, OR a 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. (https://www.multifamily.loans/freddie-mac-small-balance-apartment-loans)

In this article:
  1. Underwriting in Relation to the Freddie Mac SBL Program
  2. Related Questions
  3. Get Financing
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  • freddie-mac-sbl
  • glossary
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  • freddie-mac-multifamily
  • freddie-mac-multifamily-loans
  • freddie-mac-optigo
  • freddie-mac-sbl
  • freddie-mac-small-balance-loans

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