The Federal Home Loan Mortgage Corporation (Freddie Mac) is a government-backed corporation that buys mortgages from certified lenders and packages these mortgages into mortgage-backed securities.  In this article, we’ll explore key features of Freddie Mac loans, pros and cons, use cases, rates, and more!  Let’s dive in.    Key Features Freddie Mac exists to improve credit flow via mortgages throughout the United States. How?  By purchasing mortgage loans from lenders.  These lenders use the funds from the sale of these mortgages to generate new loans to more homebuyers.  This exchange creates a healthy feedback loop that benefits both borrowers and the housing market writ large.   How does Freddie Mac help lenders and borrowers? Freddie Mac allows banks to provide borrowers with the standard 30-year mortgage.  Without Freddie Mac’s financial backing, banks wouldn’t be able to afford to keep loans on their books for that long of a time period.  Additionally, Freddie Mac resells these new mortgage-backed securities to investors on the secondary market.  These sales allow even more investors to profit from the real estate market. Freddie Mac takes these proceeds to purchase more mortgages, and the cycle repeats.  Freddie Mac makes mortgage lending less risky for banks, expands the pool of buyers, and makes homeownership more affordable for families across the nation.    Freddie Mac: Single Family vs. Multifamily Division To understand Freddie Mac loans, it’s important to understand the difference between its single-family and multifamily divisions. Think of multifamily financing like commercial lending.  Multifamily borrowers are commercial entities (property developers, for example), not individual homeowners.  Additionally, Freddie Mac only buys multifamily commercial loans from approximately 30 commercial real estate lenders—many of these lenders do not offer any single-family loans. For these reasons, Freddie Mac’s multifamily loans are substantially larger than their single-family division—they typically range between $10M and $50M, although they can drop down to $1M and as high as $1B.  Freddie Mac does not automate the underwriting process for its multifamily division; instead, Freddie Mac staff complete the process and price mortgages before purchasing them. The following table helps visualize some of the main differences between Freddie Mac Multifamily and Single-Family loans.   Multifamily  Single-Family Property size  5+ units 1-4 units Freddie Mac lenders About 30 Optigo® lenders 1,700+ Loan size $1M – $100+M — no current limit  Legislated limit of $548,250 for a 1-unit home, $822,375 for high-cost areas Underwriting process Manual Usually automated  Number of parties involved Many, sometimes including government agencies  One borrower Source of mortgage payments Income from rents Borrower’s personal income Servicing involvement  Active in monitoring each loan’s performance Involved if the loan becomes delinquent   Freddie Mac Multifamily Products Freddie Mac offers 4 specific multifamily products.  Visit the links below to learn about each of Freddie Mac’s multifamily products.  Conventional — competitively priced, reliable Optigo® loan products for the acquisition, refinance, or rehabilitation of multifamily communities   Small Balance Loans — Optigo® loans for small apartment buildings targeting 5 to 50 units, $1M to $7.5M   Targeted Affordable Housing — Optigo® loans for properties in underserved areas that are affordable to families with low and very-low incomes including cash loans, bond credit enhancements, tax-exempt loans, and others.   Seniors Housing — Optigo® Senior Housing Loans include independent living properties, assisted living properties, and properties with skilled nursing or memory care.   Pros of Freddie Mac Loans Freddie Mac loans present many benefits to both lenders and borrowers. The specific benefits of Freddie Mac loans depend on the actual mortgage product (see above).  For the sake of example, we’ll examine one of Freddie Mac’s most popular multifamily loan offerings: Small Balance Loans (SBL).  Broadly speaking, these multifamily loans are highly flexible. Additionally, they offer borrowers both generous terms and leverage.  Some specific advantages of Freddie Mac’s SBL program include: Low-interest rates starting at just 4.51%   Flexible loan sizes starting at $750,000 and ending at $7.5M   High leverage of up to 80% LTV   Generous DSCR minimums, often as low as 1.20x   30 amortizations that keep monthly payments low for borrowers    Options for both partial and full-term interest-only loans   Cash-out refinancing available for eligible borrowers    Multiple fixed-rate term options (up to 10-year terms) and hybrid ARM options with 20-year terms   60-120 day rate commitments    Fully assumable loans with 1% fee and Freddie Mac approval    Non-recourse financing (individual exceptions)    Cons of Freddie Mac Loans Freddie Mac loans are not without their downsides.  For example, they require borrowers to pay upfront application fees, and they exclude certain property types—including senior housing, student housing, and other affordable commercial property types.  Again, we’ll look specifically at some disadvantages of Freddie Mac’s SBL Program: Not typically available for standard multifamily properties, properties with 50% or more concentration of student or military housing, Section 8 properties with below-market rents, LIHTC properties still in compliance period, or other affordable housing types   Require numerous third-party reports and assessments: Freddie Mac multifamily appraisals, a property condition report, and a Phase I Environmental Assessment   Requires an application fee ($4500 for Top Markets)    Strict leverage and DSCR requirements in small and very small markets—1.30x and 1.40x DSCR, respectively, and 70-75% LTV   Various limits on subordinate financing    Require replacement reserves up to $300/unit    Freddie Mac Loan Use Cases Freddie Mac can be a great option for different commercial real estate needs. Refinancing, acquiring, or rehabilitating a multifamily community property   Investing in a small apartment building   Purchasing properties located in underserved areas   Purchasing senior living or assisted care properties (skilled nursing, memory care, etc.)   Which Freddie Mac loan should you choose? That depends on your current financial situation and on the type of property you’re purchasing.    Freddie Mac Loan Requirements Freddie Mac requires that all borrowers meet certain credit scores, income levels, work history, DTI ratios, and minimum down payment requirements.  The specific requirements will vary depending on your specific loan.  Generally, lenders will consider the following criteria when assessing your application: Total

Overview There is a multitude of financing options for multifamily properties. But which one is the best? While some may seem appealing, you want to make sure that you select an option that checks all the boxes. Don’t compromise with an option that doesn’t give you the best financing possible! HUD 223(f) loans can be a great option for financing a multifamily property. While many think that these loans are only for nonprofits or low-income housing, this isn’t the case! There’s a reason why they’re called the industry’s most affordable financing tool. In this article, we’ll explain how HUD 223(f) loans work, how you can qualify and apply for them, how to use them, and more! HUD 223(f) Loans: How they work The HUD, or Department of Housing and Urban Development, is in charge of overseeing these loan insurance programs. The loans are available to people seeking to buy or refinance a multifamily property. The HUD isn’t the one that actually provides you with the loan. Instead, they guarantee a loan from an approved lender, like a bank, in the event of mortgage default. The HUD 223(f) loan is one type of loan guaranteed by the HUD. These loans are on a max 35-year term and amortize over that time period. They offer competitive interest rates, but lenders will set a MIP of around 1% at closing. HUD 223(f) loans also come with an annual audit to ensure financing is obtained by borrowers who are actually eligible. Most lenders will offer a minimum of $1M for these loans. There are exceptions on a case-by-case basis. How to qualify for a HUD 223(f) Loan As mentioned, many believe that HUD 223(f) loans are only eligible for non-profit financing. In reality, eligibility conditions are much more wide-reaching. Here are qualities that you need to consider for HUD 223(f) eligibility. Property Conditions Properties need to have at least 5 residential units with kitchens and baths in each unit. Commercial space on the property cannot represent more than 20% of the rentable space. Rehabilitations cannot have happened in the last 3 years. This doesn’t include non-critical repairs. You cannot use this loan on properties that need large rehabilitations. The property can either be for-profit or non-profit. The HUD doesn’t discriminate in this area. Occupancy Prior to the loan application, the property needs to have had an average of 85% occupancy for at least 6 months. Borrower eligibility Borrowers that are eligible for HUD 223(f) loans should be single-asset, bankruptcy-remote property owners. How to use a HUD 223(f) Loan HUD 223(f) loans can be used to purchase or refinance a variety of multifamily properties. They need to fit the property conditions described in the previous section. Some of these properties include detached, semi-detached, row, walk-up, or elevator/apartment properties. It’s important to consider loan amounts, leverage, and debt-service coverage ratios (DSCR). These will change depending on a few factors. Market-rate properties – 83.3% LTV / 83.3% amount of debt that can be serviced by net income Affordable housing properties – 85% LTV / 87% amount of debt that can be serviced by net income Rental Assistance Properties – 87% LTV / 90% amount of debt that can be serviced by net income Refinancing – Whichever is higher between 80% LTV or 100% cost of refinancing Purchasing – 100% of mortgageable costs, not including grants or tax credits How to apply for a HUD 223(f) Loan For a complete overview of the application process, check out this form The application process for HUD 223(f) loans can be broken down into 5 major sections, with some smaller processes at the end. Underwriting This is where the lender presents documents highlighting the value of the loan. They will also assess any risk that the borrower may present. The lender will inquire about your financial projects and history here. Third-Party Reports The HUD will require some third-party forms to be completed by the borrower. You’re going to need: Full property appraisal forms – used to assess the value of the property according to market Environmental Assessment – examines the property to make sure there are no dangerous materials Market study – Examines changes in property value through analyzing market trends Project capital needs assessment – Looks at how much it will cost to maintain a property HUD Seismic report (if the property is located in certain seismic zones) – Report to dictate if a property is safe in the event of an earthquake Management agent This is where you will select a party to manage the property on your behalf. This will be an individual or a firm that specializes in property management. You will submit their resume, management plans, and conflict resolution plans. Documentation (legal, property, financial) During this stage, borrowers will need to get documents that the HUD and the lending party will assess. Legal Legal documentation refers to – IDs, certifications of outstanding obligations, and HUD letters. Property Property documents outline aspects of the property the borrower wishes to finance. This includes zoning and building codes, code violations, utility documents, and repairs. Financial The lender will analyze financial documents here. These are any existing lease agreements, tax forms, and tax statements. Operations and closing Finally, the lending party and HUD will ask about your property management plans. To assess this, they will look at your operating budget. Make sure you draw up a plan for your operating budget. They will also look at your occupancy rates for the last 3 years. Once everything has been submitted, it could take anywhere from 100-150 days to close. How to pay back your HUD 223(f) Loan HUD 223(f) loans are fully amortizing, paid according to a schedule set by the lender. These loans have a minimum term of 10 years and a maximum term of 35 years. Interest rates for these loans are competitive and fixed through the entire term. More often than not, HUD 223(f) loan interest rates are lower than competitors as well! As mentioned though, borrowers

Overview The demand for multifamily properties has surged. That means finding the right financing option for multifamily properties can be difficult. Not every loan option works in a given investing scenario. If you’re looking to finance the construction or major rehabilitation of a multifamily property, consider the HUD 221(d)(4) loan! The HUD 221(d)(4) loan is the multifamily property industry’s highest leverage and lowest cost loan. It provides a minimum of $4 million on up to a 43-year term, fully amortizing over 40 years. Are you interested to learn more about this fantastic financing tool? In this article, we’ll go over how HUD 221(d)(4) loans work, how to qualify for them, how to apply, how you can use them, and more! HUD 221(d)(4) Loans: How they work The Department of Housing and Urban Development, or HUD, isn’t the party that’s providing the loan to you. Instead, they work with partnered lenders and cover some of the losses in the event of a default on the loan. Typically, the loans they cover are for multifamily property financing. The HUD 221(d)(4) loan is a type of loan that the Department of Housing and Urban Development will guarantee. HUD 221(d)(4) loan terms last for a maximum of 40 years, with an additional 3 years (43 total) for the construction period. The initial 40 years are amortized with fixed interest rates. To protect the lenders, borrowers will need to pay a mortgage insurance premium at closing. These loans come with an annual audit, and you’ll need a general contractor to close the deal. Most lenders will offer a minimum of $4 million, but the HUD does make exceptions. For construction purposes, lenders will usually offer a minimum of $10 million. How to qualify for a HUD 221(d)(4) Loan To qualify for a HUD 221(d)(4) loan, you’ll need to make sure the property financing is appropriate for the HUD 221(d)(4) loan. Here are a few things to keep in mind. Property Conditions The HUD 221(d)(4) loan is meant to finance the construction of multifamily properties or significant rehabilitation. These properties can be considered market-rate, moderate-income, and subsidized properties. The properties need to have at least five units for occupation, and each unit must have a kitchen and bath. There can also be some space used on the property for commercial purposes. This area cannot exceed 25% of the rentable area or account for more than 15% of the property’s net income. The property can be either for-profit or non-profit. Borrower eligibility Borrowers that are eligible for the HUD 221(d)(4) loan should be single-asset, bankruptcy-remote property owners. Use of funds To be eligible for financing, the property must meet one of the two requirements: The cost of rehabilitating the property that already exists must be more than the greater of 15% of replacement cost or $6500 per unit The replacement of two or more buildings, ignoring costs How to use a HUD 221(d)(4) Loan HUD 221(d)(4) loans are used to construct or rehabilitate a multifamily property. These properties include detached, semi-detached, row, walkup, and elevator properties. Loan amounts, LTC ratios, and DSCR will differ based on the type of property you’re dealing with. Market-rate properties – 85% LTC / 85% net income / 1.20 DSCR Affordable housing properties – 87% LTC / 87% net income / 1.15 DSCR Rental assistance properties – 90% LTC / 90% net income / 1.11 DSCR How to apply for an HUD 221(d)(4) Loan There are 7 primary sections that you’ll be concerned with: Underwriting During underwriting, the lender highlights the value of the loan. They’ll discuss terms, ask for HUD-related documentation, and assess your risk as a borrower. You’ll need to submit documents about what you plan on doing with the loan. You can continue once the lender and HUD verify all your information. Until then, it’s a waiting game! Third-Party Reports There are a variety of third-party forms that the HUD will require from you. Property appraisal forms – assess the value of the property in the context of the market. If the property isn’t built yet, it’s essential that you provide a construction plan for the property. Environmental assessment – ensures there are no hazardous materials on the property. Site containment report – examines the construction site to ensure safety. Certification of specific plans and measures – If your multifamily property needs special considerations, note them here. Management Agent Here, you’ll be responsible for submitting documents on who will manage the property. This might be an individual, a party of your choosing, or a management firm. You’ll submit their resume, plans, and the actions they’ll take in the event of tenant complaints. Construction and Architectural Documents You will submit your floor plans and planned rehabilitation changes here. Be ready to show the approval documentation! Legal, Property, and Financial Documentation Legal This is all the personal documentation you’re going to need for the project. This includes IDs, certifications of obligations, and any HUD authorization letters. Property Property documents highlight aspects of the property that might be of concern. This includes zoning and building codes, construction permits, and code violations. Financial Financial documents include lease agreements, any personal tax forms, and any existing income forms. You’re going to need an organizational chart that breaks down how you plan on spending the loan as well. Mortgagor At this stage, you’ll present your mortgagor’s resume. This can be an individual or, more likely, the project sponsor and their development team. List all the principals and submit a credit report for each of them. General contractor and closing The final step before closing is finding or finalizing your general contractor. The HUD and lender can recommend contractors if you haven’t decided on one yet. Upon selection and agreement, submit select contractor-related documentation to the HUD. After this, you’re all set! It can take anywhere from 5-to 11 months to close the loan application. How to pay back your HUD 221(d)(4) Loan HUD 221(d)(4) loans are amortizing for 40 years; you’ll be paying them