Quick Guide to Freddie Mac Multifamily Financing for Investors

Freddie Mac remains one of the largest providers of mortgage financing in the United States. Not just for homeowners, Freddie Mac also offers enticing loan options for multifamily clients.

With a tagline of “We Make Home Possible,” Freddie Mac puts its money where its mouth is, creating $73B in new business volume, 693K rental units financed in 2022 alone. Of those, 96 percent of the eligible rental units funded were affordable to families with low-to-moderate incomes earning less than 120 percent of area median income.As demand for rental housing soars across the nation, Freddie Mac loans give multifamily clients a unique opportunity to capitalize on this trend while enjoying low interest rates, extended amortization periods, and non-recourse options.

Here’s why you should consider taking advantage of Freddie Mac and its stability and predictability in an ever-changing market.

Understanding Freddie Mac

The Federal Home Loan Mortgage Corporation, or Freddie Mac, is a government-sponsored enterprise (GSE) for multifamily properties and single-family homes. Established in 1970, it was designed to create liquidity, stability, and affordability in residential real estate and expand homeownership to more Americans at a time when interest rates were sky-high and mortgage credit was in short supply.

By purchasing mortgages from lenders, Freddie Mac helped inject liquidity into the market, enabling banks to issue more loans at affordable interest rates. This led to increased competition among lenders and fostered innovation in mortgage products.

Today, Freddie Mac remains a critical partner in the multifamily housing sector. It enables clients to purchase market-rate properties, HUD Section 8 properties, or properties funded through the Low-Income Housing Tax Credit program.

A Word about OptigoSM

Optigo is the name of Freddie Mac’s Multifamily Seller/Servicer network and suite of loan offerings. Introduced in 2019, Freddie Mac Multifamily’s Optigo network is a select group of Freddie Mac approved lenders (knowns as Seller/Servicers). Optigo Seller/Servicers and Freddie Mac work together to provide flexible funding solutions to clients and support the financing of affordable rental housing. Freddie Mac Multifamily’s Optigo offerings include a full range of innovative loan products for the acquisition, refinance, or moderate rehabilitation of multifamily properties.

Types of Freddie Mac Loans for Borrowers

Freddie Mac offers several options for multifamily loans, including the following:

Conventional

Conventional loans cover a wide range of use cases for multifamily developments. Loan amounts typically range from $7.5 million to $100 million, but smaller and greater amounts can be considered. Loans are available as fixed rate, floating rate, and float-to-fixed rate.

Eligibility:

• Property must be standard multifamily housing, student housing, senior housing, manufactured housing community, cooperative housing, or targeted affordable housing.
• Borrowers must be an LLC, corporation, limited partnership, or tenancy in common (TIC) with 10 or fewer tenants.
• The client must be a Single-Purpose Entity (SPE)
• Additional requirements

Senior Housing

Senior housing loans provide funding earmarked for assisted living facilities, independent living, memory care, and continuing care rental properties. Funds can be used to acquire or refinance existing properties designated as senior communities. Loan terms range from 5-10 years, but can be up to 30 years with a fixed interest rate.

Eligibility:

• Experienced owner of comparable senior facilities
• Can be a Single Asset Entity (SAE), SPE, limited partnership, LLC, general partnership, REIT, or corporation, depending on the loan amount
• Additional requirements

Small Balance Loan

Freddie Mac’s Small Balance Loans (SBLs) provide funding ranging from $1 million to $7.5 million for properties with at least five apartment units. These loans are known for being fast, cost-effective, and flexible, offering borrowers a streamlined loan process. SBLs offer a 5-, 7-, or 10-year hybrid ARM and fixed-rate loan options.

Eligibility:

• Loan amounts $1M-$7.5M
• Up to 100 units
• Acquisition or refinance
• The client must be limited partnership, LLC, SPEs, SAEs, or TICs with up to five tenants
• Additional requirements

Additional Customization Options with Freddie Mac

In addition to its loan offerings, clients have access to several customization options through the Freddie Mac financing program.

• Lock Options: Lock in rates with standard delivery, early-rate lock, and index lock, each of which helps preserve interest rates during critical times of the application process or loan term. Once a deal goes under application, Freddie Mac agrees to hold your quoted gross spread for 60 days.
• Tenant Advancement Commitment: Get structured financing when you preserve rents via voluntary rent restrictions and provide social services at properties for the life of the loan.
• Green Advantage®: Qualify for better rates when you prioritize energy and water conservation.
• Workforce Housing Preservation: Gain benefits when you preserve rent for middle-income families.

Bear in mind that Freddie Mac loan eligibility and requirements can vary by loan product and property type. Working with an experienced partner like Walker & Dunlop can provide you with the best comparison between loan types and understanding of the unique nuances of each.

Benefits of Freddie Mac Financing

Clients choose Freddie Mac financing for multifamily properties because of its flexibility and generous loan terms. Core advantages include:

• Flexible loan amounts
• Competitive interest rates
• Long-term fixed-rate options
• Variable rate options with prepayment flexibility
• Non-recourse loans (loans that allow the lender to seize only the collateral stated in the loan agreement, even if it doesn’t cover the loan’s total value)
• Multiple loans for different property types (e.g., senior housing, targeted affordable housing)
• Index Lock option: This option allows clients to lock the Treasury Index for fixed-rate loans any time after a signed application with an Optigo® lender has been delivered to Freddie Mac, which reduces the client’s exposure to interest rate volatility.
• Availability of supplemental financing

Similar to Fannie Mae, Freddie Mac offers incentives for sustainable features and upgrades. This allows clients to qualify for better pricing if they meet certain criteria, such as reducing water or energy consumption by 30 percent.

There’s also the benefit of tapping into a wide network of approved lenders that can streamline the loan origination process. This existing network makes it easier to access capital and keep developments moving forward.

Outlook for Freddie Mac

Freddie Mac remains one of the nation’s biggest sources of mortgage credit. With Fannie Mae, the two guarantee nearly half of the $11 trillion mortgage market. The push for more affordable housing, particularly in the multifamily sector, is only reinforcing the program’s value.

Earlier this year, stock prices for Freddie Mac and Fannie Mae soared after previously slumping due to a stagnating housing market. After months of rapidly raised interest rates, clients are now feeling hopeful about the future of development.

Multifamily property loan products and programs continue to make it an attractive financing option. With inflation still high (albeit not as high as its peak in June 2022), the need for affordable housing is in great demand. Freddie Mac’s lower interest rates, flexible loan terms, and variety of loan types offer sustainable development so that more work can be done now.

Partner with Walker & Dunlop for Freddie Mac Multifamily Financing

Multifamily property loans by Freddie Mac offer clients a wealth of resources and capital that is easy to access and customize. These loans play a critical role in shaping the affordable housing market, and the client-friendly terms show Freddie Mac is ready to keep our housing market moving forward.

A good starting point is to explore the multifamily housing financing options with Freddie Mac to learn more about loans. It’s also beneficial to work with an experienced partner who can navigate you through the nuances of these loans and what they require.

As the #3 Freddie Mac OptigoSM Lender in 2022, Walker & Dunlop continues to deliver best-in-class financing solutions for clients by partnering with Freddie Mac in markets all across the country. Contact us today to learn more.