Freddie Mac Floating-Rate Loans

Freddie Mac Floating-Rate Financing for Multifamily Properties

If you're a developer or investor looking for flexible and affordable adjustable-rate financing, a Freddie Mac Floating-Rate Loan could be the ideal solution. Freddie Mac Floating-Rate Loans typically offer some of the lowest interest rates found anywhere, and can often be used effectively as a bridge loan, especially for investors who plan to sell the property or get permanent financing in the near future. Floating-Rate loans are available for property types including standard multifamily housing, manufactured housing communities, seniors housing, and Targeted Affordable Housing properties (including cash LIHTC Year 4-10 and 11-15 and Section 8 loans), but are not available for cooperative housing properties. 

Freddie Mac Floating-Rate loans start at a minimum of $5 million (though smaller loans can be considered), allow LTVs of up 80%, and have 5, 7, and 10 year loan terms with amortizations of up to 30 years. Plus, these loans are non-recourse, permit eligible mixed-use properties, and allow for both the purchase and refinancing of multifamily properties. 

Keep reading below to learn more, or click here to download our easy-to-understand Freddie Mac Floating-Rate Loan term sheet.

Sample Freddie Mac Terms for Floating-Rate Loans in 2024

Size:  $5 million to $100 million (however, smaller and larger loan sizes will be considered)

Terms:  5, 7, and 10-year terms, partial term and full-term interest-only financing available. Typically, interest-rate caps are required and can be purchased from a third-party. Caps are not required for loans with an LTV of 60% or less. 

Amortization:  Up to 30 years

Interest Rate:  Based on the 30-day average SOFR index 

Eligible Properties

Freddie Mac Floating-Rate loans are available for: 

• Standard multifamily housing properties

• Manufactured housing communities

• Seniors housing developments

• Targeted Affordable Housing properties (including cash LIHTC Year 4-10 and 11-15 and Section 8 loans)

Freddie Mac Floating-Rate Loans are not available for cooperative housing properties. 

Eligible Borrowers 

• Limited partnerships, tenancies in commons (TICs), corporations, or limited liability companies

• For loans over $5 million, the borrower must be a single purpose entity, while for loans under $5 million, the borrower may be a single asset entity

• For tenancies in common, there must be no more than 10 tenants in common, and each must be a single purpose entity (SPE)

Maximum LTV/Minimum DSCR:  

• 5-7 Year Loans:

  • Amortizing: 75%/1.30x

  • Partial Term Interest-Only: 75%/1.30x

  • Full Term Interest-Only: 65%/1.40x

• 7 Year Loans:

  • Amortizing: 80%/1.25x

  • Partial Term Interest-Only: 80%/1.25x

  • Full Term Interest-Only: 70%/1.35x

• 7+ Year Loans:

  • Amortizing: 80%/1.25x

  • Partial Term Interest-Only: 80%/1.25x

  • Full Term Interest-Only: 70%1.35x

Prepayment Options:  Options include: 

• 1-year lockout followed by 7 years of 1% prepayment penalty

• 3% penalty in 1st year, 2% penalty in 2nd year, followed by 6 years of 1% prepayment penalty

• 5%, 4%, 3%, 2% step-down for the first 4 years, followed by 4 years of 1% prepayment penalty

• 7%, 6%, 5%, 4%, 3%, 2%, 1%, 1% step-down prepayment penalties (only available for 10-year capped floating rate loans)

*No prepayment penalties at all for the last 90 days of the loan 

Recourse:  Loans are non-recourse with standard “bad boy” carve-outs

Refinancing Test: No test needed for amortizing loans with a DSCR of at least 1.40x and an LTV of less than or equal to 65%. Interest-only loans must pass a refinancing test before they are approved. 

Assumability:  Loans are assumable with lender approval, but require a 1% assumption fee paid to Freddie Mac. May also require an underwriting fee paid to the lender (typically $5,000.)

Timing:  Borrower will typically receive a commitment between 45 and 60 days after initial application; third-party report timing and borrower due diligence submission may speed up or slow down the process 

Advantages

• Very competitive interest rates

• Loans are non-recourse

• Certain mixed-use properties are eligible

• Can be effectively used as a bridge loan in many situations

Disadvantages

• Requires third-party reports including Phase I Environmental Assessment, Appraisal, Physical Needs Assessment, Seismic Report may be required for properties in Seismic Zones 3 and 4

• Requires replacement reserves

• Application fees required: $2,000 or 0.1% of loan amount (whichever is larger) for conventional first mortgages, $5,000 or 0.15% of loan amount (whichever is larger) for seniors housing, $3,000 or 0.1% of loan amount (whichever is larger) for targeted affordable housing loans

• Typically requires a loan origination fee

• Typically requires between $8,000 and $12,000 in legal fees

• Lender application fees also required (avg. of $15,000, including third-party reports, but may vary based on specific lender)

• 2% rate lock fee usually required (refunded after Freddie Mac purchases loan, usually around 30 days post-closing)

Case Study: Buying in Rockford

Sarah, an established real estate investor, identified an opportunity to broaden her portfolio in Rockford, Illinois, a smaller city that has been experiencing steady growth. Her target was a well-maintained 20-unit multifamily property priced at $3 million, reflecting an average cost of $150,000 per unit.

Considering the flexible and competitive terms offered by the Freddie Mac Floating-Rate Loan, Sarah decided to utilize this financing route to acquire the property. It offered a perfect fit for her short-term plans and expectations of securing permanent financing or selling the property within a few years.

Sarah applied for a loan of $2.4 million, maintaining a strong 80% loan-to-value (LTV) ratio. The terms of the loan included five years of interest-only payments at an adjustable rate based on the 30-day average SOFR index. This financing structure was particularly attractive for Sarah as it provided lower initial payments and the opportunity to refinance or exit the investment before the interest rates rose significantly.

To secure the loan, Sarah complied with all necessary loan requirements, including obtaining third-party reports such as an appraisal, a Phase I Environmental Assessment, and a Physical Condition Assessment. The reports served not only to satisfy the lender's underwriting process but also gave Sarah an in-depth understanding of her investment and any potential risks involved.

With the Freddie Mac loan, Sarah was able to successfully acquire the multifamily property in Rockford. The loan's flexibility, affordability, and attractive interest rates allowed her to take advantage of a promising investment opportunity in a growing market.

This is a fictional case study provided for illustrative purposes.