As of last October, Freddie Mac now offers small loans to apartment properties. The available lending funds have a non-recourse provision with competitive terms offered by no other competitor. The loan has a new small balance loan initiative. The average loan ranges from $2-2.5 million, with a streamlined 60-120 day lock on the interest rate, and a simple underwriting process. The most appealing term to borrowers has been 5 years, however the terms do offer a range from 5-10 years.
The small loans will cover up to 80% of the apartment property value. The program offers the borrower partial or full-term interest-only loans. Other options include fixed-rate loans with a balloon payment at the end of the term or adjustable-rate mortgages.
Freddie Mac will also accept debt service ratios as low as 1.20 in top markets and elsewhere should be at least 1.25x
The loan has been in its “ramp-up” period as Freddie Mac’s Multifamily is in the process of closing more loans, while educating consumers. There are approximately 100 loans in the pipeline, at all stages in the process, totaling $200 million dollars.
As Freddie Mac continues to receive inquires from banks and lending institutions interested in participating in the program, Freddie Mac will expand the program. Expect this program to stay around for quite some time, Freddie Mac is a stable source of financing and can withstand making it through a financial crisis.
The original companies who signed up for the small loan program were Arbor Commercial Mortgage, Greystone Servicing Corporation and Hunt Mortgage Group. The West’s were the first to obtain a loan through Arbor Commercial in January and received the $4 million, non- recourse loan with a fixed-rate for 5 years, on a 61- unit apartment complex in New York.
As popularity increases more and more lenders will join the program. The three most recent lenders to joined the program to originate and service Freddie Mac’s small-balance loans include Sabal Financial Group, ReadyCap Commercial and Community Preservation Corp.
This could be a game changer for those investors who want to gear their ventures toward apartment properties. Getting the best financing available is key in profiting from an investment property.
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