Freddie Mac Hybrid Small Apartment Loans Give Green Flag to Finance Multifamily Properties

One-third of all multifamily units are in small multifamily properties which are an important component of the affordable rental housing stock for low and moderate income individuals. Although many small multifamily properties receive some form of govt. subsidy, UN-subsidized units account for three-fourths of units with rents below $600.

Multifamily mortgage debt organization and investment is highly fragmented although a handful of institutions holds about one-third of outstanding multifamily debt, the remainder is held in portfolio by almost 6,000 Federal Deposit Insurance Corporation. Although secularization plays an important role in supporting multifamily finance, UN-secularized portfolio holdings remain a significant source of multifamily investment. Commercial multifamily mortgage secularization is slowly recovering, and life insurance companies play a measurable role as multifamily investors.

How Freddie Mac Hybrid Small Apartment Loans Set a Class for Finance?

Albeit small multifamily properties are commonly defined as those with five to 50 units, but Freddie Mac define small multifamily properties by loan size ranging from $1 million to $5 million. Smaller properties with two to four units are also an important source of affordable rental housing, loans for these smaller properties are originated using Freddie Mac hybrid small apartment loans’ guidelines.

In recent days, Freddie Mac hybrid small apartment loans have represented a limited segment of the total multifamily business activities. Though Freddie Mac is a government sponsored enterprise that provides a secondary finance market for residential mortgages, billions of dollars have been provided through Freddie Mac hybrid small apartment loans for multifamily financing.

Freddie Mac Hybrid Small Apartment Loans in Multifamily Housing Finance

As secondary market investors, the Freddie Mac hybrid small apartment loans provider’s role in providing liquidity to the multifamily market is an important one; however, they face a number of challenges in financing multifamily properties. These hurdles are particularly acute for small multifamily loans.

The characteristics of multifamily properties to qualify for Freddie Mac hybrid small apartment loans are to make financing more challenging. More than half of the small multifamily housing stock is more than 30 years old and tends to have higher maintenance costs than larger properties. Although vacancy rates for smaller properties are only marginally higher than those for properties with more than 50 units, losses due to vacancy are higher for smaller properties. To manage these concerns, adequate reserves to cover temporary liquidity problems and meet anticipated capital expenses are even more critical for smaller properties.

Although individual borrowers are important contributors in the small multifamily arena, they have unique characteristics that present challenges to financing. In small multifamily properties with less than 25 units, borrowers tend to be individual property investors or smaller commercial enterprises that invest in just few properties. Typically, the ownership structure in small properties with more than 25 units involve more formal legal arrangements such as limited liability partnerships, limited liability companies, or other types of corporate entities.

Individual multifamily borrowers operate on thinner cash flow margins that larger property owners, and are exposed to higher income fluctuation risk when vacancies occur. Many individual borrowers don’t have the resources to outsource the management of their properties; instead, they manage their properties themselves which can impact the maintenance of the units or the speed of filling vacancies.

Accessing the entire secondary market data is difficult for individual small multifamily borrowers who often lack the deep pockets to meet secondary market underwriting requirements for minimum net worth, liquidity reserves, or es crowed reserves for capital expenditures. In addition, individual borrowers may not have audited financial statements to meet reporting requirements.

Evaluating these multiple factors before applying for Freddie Mac hybrid small apartment loans not only adds to the complexity and cost of underwriting small-balance multifamily loans, but also limits the field of investors willing to purchase these loans. Due to a combination of unique factors that are typical of Freddie Mac hybrid small apartment loans, investors view the market as highly heterogeneous. In every loan transaction, all of the distinctive characteristics of both the property and the borrower must be considered. In many circumstances, these characteristics render a loan to a particular borrower, or on a small multifamily property, ineligible for purchase by the government sponsored enterprises.

Need immediate assistance to qualify for Freddie Mac hybrid small apartment loans? Get in touch with qualified loan advisers at ALB Commercial Capital waiting eagerly to respond to your calls.

When the Apartment Building Loans Refinancing Is Considered a Praiseworthy Investment?

If your new interest rate will be at least one point lower, you get eligible to refinance your apartment building loan. That may have been true years ago, but with the fact that refinancing has been costing less recently; it is a good time to think about new apartment building loans. Refinancing your apartment building loans has a variety of advantages that often make it a praiseworthy initial spending many times over. Make sure you consider any pending balloon payments and of course existing prepayment penalties on your present apartment building loans.

Advantages of Refinancing Apartment Building Loans

When you refinance apartment building loans, you could have the ability to lower your interest rate and monthly payment; sometimes by a lot. You might also have the ability to cash out a portion of the built-up equity in your commercial property which you may use to consolidate debts, improve your property, or acquire more. With reduced interest rates, you might also be able to build your equity more quickly by switching to short-term apartment building loans.

apartment building loans

                                          

                                                          

How Much You Need to Spend While Refinancing Apartment Building Loans?

All of the advantages of refinancing apartment building loans do come with some expense. You will be charged the same sort of expenses and fees you did with your present apartment building loans. Among these may be settlement costs, an appraisal, lender’s title insurance, and underwriting fees and so on.

Calculating the Refinancing Option for Apartment Building Loans

You might investigate paying points to reduce your interest rate. Consult with a tax professional before acting on word of mouth that the points paid may be deducted on your taxes. Another thing about taxes is that if your interest rate is lowered, naturally you will also be reducing the paid interest amount that you’ll be able to deduct from your federal income taxes. This is one more cost that some borrowers take into consideration.

Most of the apartment building loan borrowers find that the savings per month balance out the initial cost of refinancing apartment building loans. Thus, here at ALB Commercial Capital, we give professional assistance to figure out what your options for refinancing apartment building loans are by considering the effect of refinance on your taxes that you may like to sell in the coming days and your money on hand.

Get in touch with the expert apartment building loan advisers at ALB Commercial Capital to help you refinance without any hassle

Purchasing or Refinancing a Multifamily Property? Check Out How Apartment Loans Help Financing an Apartment Building

Before exploring the financing options, let’s have a look at what’s count as an apartment building. Apartment building generally contains 5-7 units and each of them should have a kitchen, bathroom, and a sleeping/living area for sure. What does the ideal investor look like for an apartment building of 5+ units? 

The ideal investor should have enough cash or assets to put down 20-25% of the purchase price and at least another 10% of the total loan amount in assets or cash. If you are looking to buy an apartment building for the first time and you are planning to use hard money, equity or mezzanine debt, the deal might be too big for you. Instead of that going with a flexible apartment loan program is a way better choice. 

Understand What is Expected from You as Borrower to Get the Best Financing Terms

The days of walking into your local bank to get a military or commercial property loan are over. Not because the bank can’t finance them for you, but because there are simply too much options. Today privately handled and government backed agencies like Fannie Mae and Freddie Mac are offering non-recourse apartment loans with 10year of fixed-rate loans at nearly 4% to qualified borrowers. Whether you are a new borrower or are looking to refinance an existing loan, it’s important that you partner with a lender like ALB Commercial Capital to get you the best leverage and financing terms available.

Below is the standard documentation that you need to submit to obtain the most accurate quote whether you will be purchasing or refinancing a multifamily property.

Property Information:

•          Last year’s P&L
•          Trailing 12 month, Month-by-month P&L
•           Current rent roll
•          Stabilized and/or proper
•          Stabilizes budget/Pro Forma
•          Summary of Cap Ex (capital expenditure) to date
•          Property photos, address, description, unit-mix, age etc

Borrower Information:

•         Name of entity
•         Personal financial statement for each guarantor
•         Resume/Bio for each guarantor
•          Property management company info if not self-managed

If you are refinancing or financing an apartment building, we may also need some additional information including when you bought the property, how much you bought it for, how much you put down, your current loan terms, and the current occupancy. To get a better idea of the apartment loans’ process, check the details below: 

•          Apartment loan amount can gain maximum proceeds subject to the lesser of an 80% LTV and a DSCR no less than 1.25
•        10 years fixed
•          30 year amortization
•          4.3%-4.9% interest rate
•         9.5 years yield maintenance
•          Assumable for 1% fee
•          Non-recourse
•          About $15k application fee for third party reports with unused funds applied towards closing costs.
•          Refundable Good faith deposit of 2% at time of commitment and rate lack refunded about 30 days after closing

Although bank prescribed apartment loans cost more to originate than private agencies, however, in the end they offer better long term financing, interest rate risk protection and of course leverage. Are you ready to get started? Connect with one of the finest team of experienced apartment loan advisors at ALB Commercial Capital to explore your options for best rate apartment loans!