Freddie Mac® SBL Breakdown

The Freddie Mac® Small Balance Loan (SBL) is a multifamily mortgage product. Offering favorable terms for borrowers, the Freddie Mac® SBL is popular amongst investors seeking to acquire or refinance a multifamily property with more than five units.

SBLs are deployed by licensed Freddie Mac® lenders for amounts ranging from $1 million to $7.5 million. They can have fixed-rate terms of 5, 7, and 10 years, or a 20-year hybrid ARM (adjustable rate mortgage) with an initial 5, 6, 7 or 10 year fixed-rate period. With LTVs up to 80%, low interest rates on properties in high growth markets, and amortizing over 30 years, SBLs are an attractive loan offering for new and experienced investors. 

Freddie Mac® SBL Terms

The general terms for a Freddie Mac SBL in 2022 are listed below. Please note, these terms are subject to change and in some cases can be negotiated. Login to LoanCenter to check the exact terms for a specific property:

Loan Amount

$1,000,000.00 to $7,000,000.00.  

Terms

5, 7, or 10 year fixed-rate terms.  20-year hybrid ARM with an initial 5, 7, or 10 year fixed-rate period is also available. 

Amortization

Fully-amortized up to 30 years with partial interest-only options. Full-term interest-only options may also be available.

Loan-to-Value (LTV) ratio

Up to 80% for acquisitions and refinancing in standard and high-growth markets, and up to 75% for acquisitions/70% for refinancing in small and very small markets.

Debt-Service-Coverage-Ratio (DSCR)

1.20 for high-growth markets, 1.25 for standard markets, 1.30 for small markets, and 1.40 for very small markets.

Recourse

Non-recourse, albeit with ‘carve-outs’ - contracted stipulations that the borrower not commit fraud or engage in other acts of bad faith.  The carve-outs can be waived for SBLs with a DCSR of 1.40 or higher and LTV no higher than 65%.

Prepayment

A step down or yield maintenance premium. Soft step-downs are also available.

Freddie Mac SBL Requirements

SBLs can be used to acquire or refinance multifamily properties with more than five units. The lender will require approval from Freddie Mac® for loans larger than $6 million for properties with more than 100 units. 

Eligible properties include co-ops, townhomes, condos, mixed-use, non-contiguous properties, and, conditionally, select properties with affordable housing subsidies. For example, properties with a Low-Income Housing Tax Credit (LIHTC) and a Land Use Restriction Agreement (LURA) that are in the final 24 months of the 15-year initial compliance period. Properties in the extended use period are also eligible, provided the investor has exited the LIHTC program. 

Properties with senior, student, or military housing are not eligible for an SBL, nor are properties with a Section 8 contract or other housing assistance payment contracts, or Historic Tax Credit (HTC) properties that have a master lease structure.  

The borrower should have a minimum credit score of 650, a net worth equal to the loan amount, and liquidity equal to nine months of principal and interest payments. The borrower should have at least one year of commercial property management or ownership experience, and had no bankruptcies, foreclosures, deeds-in-lieu, or defaults in the past seven years. 

Loans up to $6 million are available to US citizens, LLCs, limited partnerships, single asset entities, special purpose entities, trusts, and tenancies in common with up to five unrelated individuals. Only single asset entities are eligible for SBLs greater than $6 million. When applying for an SBL there is a $7,000 application fee. 

There are more terms and requirements to consider in addition to those listed above. However, they are all subject to change and negotiation with a licensed lender. Login to LoanCenter to check the terms for a specific property and initiate the process of applying for a Freddie Mac® SBL.

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