The Small Balance Program is for the acquisition or refinance of small balance loans providing liquidity, stability, and certainty of execution to the affordable rental housing market nationwide.
Key Benefits of the Freddie Mac Small Balance Program are as follows.
Financing of small balance loans using hybrid ARM or fixed-rate mortgage products, offering partial-term and full-term interest-only, A Streamlined processes during pricing, underwriting, closing and funding as well as Competitive pricing and Streamlined loan documents
Property types eligible are as follows:
Conventional multifamily housing with five residential units or more, including conventional housing with tax abatements and Section 8 vouchers.
Loan amounts range from $1-5MM
Max LTV is 80%
Term length ranges from 5-10 years.
The terms are fixed that either balloon or roll over to a 20 year hybrid
Amortization goes up to 30 years
The prepayment penalty is yield maintenance, 5% declining, or 3% declining
Small Balance loans are Non-recourse
The borrower Can rate lock up to 120 days in advance of closing
Additional loan features are as follows: The borrower can choose to have cash out, , small balance loans are assumable, replacement reserves and insurance escrow is waived, tax escrow is waived for LTVs at 65% or lower, credit score is a minimum of 650 or better, last but not least, the borrower’s net worth needs to be equal to the loan amount and their liquidity needs to be equal to 9 months of debt service payments.
Commercial Loan Direct offers conventional construction loans for commercial real estate properties, SBA-504 companion mortgages for transactions that are approved via the Small Business Administration, and FHA loans for apartment complexes construction. Property types eligible for construction financing are as follows: industrial, medical, mixed use, multifamily, office, retail, as well as self-storage.
LTVs can go up to 75% through a conventional program but sometimes can go a little higher by obtaining an exception, 90% Loan to cost can be achieved through HUD’s FHA program for multifamily construction, and 90% with the SBA 504 program for owner occupied properties. Term lengths usually run between 12-36 months while the amortization is interest only during the term of the loan. Prior construction experience is highly preferred but there are exceptions in certain situations. Additionally, borrower’s should expect to have “hard cash” equity invested in their project, while being able to maintain a reasonable post-closing liquidity. It is important to note that on construction loans the lender usually sets up an interest reserve account which lender uses to make payments until certificate of occupancy status is achieved. This is done so that Borrower’s cash flow doesn’t get impacted in a negative manner during the actual construction period.
There are usually two loans required to finance a commercial real estate construction loan, but sometimes these can be combined into one:
Option #1 – Conventional Construction Loans. This financing type is usually offered on investment properties and allows enough time to complete the construction and property stabilization. Once the property is stabilized Borrower usually sells it for a profit or refinances it with better priced long term debt.
Option #2 – Construction to Perm. After a project achieves “stabilization” and leases up to the market level of occupancy, the construction loan is “taken out” by longer term financing – this type of financing is all done by the same lending institution.
There are many variables that are important to understand when obtaining a construction commercial loan and it is important to understand them prior to starting the lending process.
USDA stands for United States Department of Agriculture. The USDA helps create jobs and stimulates rural economies by providing financial backing for rural businesses and properties. Its primary purpose is to create and maintain employment and improve the economic climate in rural communities.
USDA Loan proceeds may be used for working capital, machinery, and equipment, real estate, and certain types of debt refinancing. This is achieved by expanding the lending capability of lenders in rural areas and helping them service quality loans that provide lasting community benefits.
Properties that fall under USDA loans are as follows: apartments, hotels, industrial, medical, mixed use, office, retail, as well as self-storage.
There are two different programs under USDA that the borrower can chose from.
The first program is called “Business Loans and Grants.” The Business Program works in partnership with the private sector and community-based organizations to provide financial assistance and business planning. It’s primary purpose is to fund projects that create or preserve quality jobs and/or promote a clean environment with a rural area (under 50,000 population).
There are two loan products under the Business and loans and grants program:
The first product is the Business and Industry Guaranteed Loan (B&I) Program.-The purpose of this program is to improve, develop, or finance business, industry, and equipment and improve economic and environmental climate in rural communities.
The second product is the Rural Business Investment Program-The purpose of this program is similar to the B&I program.
The second program under USDA is the multifamily platform. Products that fall under this platform are as follows:
-Rural Rental Housing-This program is made to individuals, trusts, associates, partnerships, limited partnerships, state or local public agencies.
-Guaranteed Rental Housing-This program guarantees the construction, acquisition, or rehabilitation of rural multi-family housing.
-Housing Preservation Grants-This program provides grants to sponsoring organizations for the repair or rehabilitation of very low-to-low income housing.
-Rental assistance program-this program provides an additional source of support for households with incomes too low to pay the HCFP subsidized rent from their own resources.
-Multi-family housing preservation and revitalization-the goal of the MPR program is to restructure rural rental housing loans and off-farm labor housing loans, revitalizing projects in order to extend the affordable use of these projects without displacing tenants due to increased rents.
USDA term length and amortization depends on the product as well as the underwriting guidelines of the conventional partner. Terms and amortizations can go up to 40 years in some limited circumstances, but are typically between 5 and 30 years.USDA loans are almost always recourse. Prepayment structures can vary greatly, depending on how the conventional partner structures the loan and what USDA program is guarantying the loan. Lending area are only available in rural areas less than 50,000 population.
For more information on USDA loans please visit our USDA Loans page.
Bridge financing gives owners the flexibility they need to reposition and stabilize commercial real estate properties. It is important to note that Bridge loans usually call for a clear exit strategy upon the loan’s term completion.
Property types that fall under the Bridge Loan Program are as follows: apartments, industrial, medical, mixed use, office, retail, as well as self-storage.
Max LTV can go up to 90%. Term length ranges from 12-36 months. Amortization is interest only, self-amortizing or a combination of the two.
Debt Service Coverage Ratio requirements vary widely depending on the program and can usually range from sub 1 to 1.6 times.
Bridge loans are can be recourse and non-recourse with standard carve-outs for environmental, bankruptcy, fraud and misapplication of funds. Partial recourse and/or operating deficit and completion guaranty may be required for properties undergoing more significant renovation.
Prepayment penalty structures and exit fees might apply.
For more information on bridge loans please visit our bridge loans page.
Commercial loans can take 2 different forms – owner-occupied mortgages and investment mortgages. When the collateral is owner-occupied, the property’s sponsor(s) use over 50% of the building’s useable square footage for their personal businesses. Any other use makes the collateral investment property. It is important to note that in order to securitize a commercial loan properly Commercial properties must be zoned appropriately.
Conventional commercial loans are mortgages backed by commercial real estate that are provided by a lending institution such as banks, credit unions, savings and thrift institutions, life insurance companies, hedge funds, pension funds, private financial institutions, etc. These loans are usually secured by a lien position on the subject properties being financed. The collateral may be any type of commercial real estate.
Property types eligible are as follows: apartments or multifamily properties with over 5 units, office, retail, industrial, hospital & healthcare, self-storage, hotel, mixed use, and churches.
Conventional loans typically have a maximum LTV of 75-80%, while some lenders can stretch up to 85% in limited circumstances for financially strong transactions. Borrowers should expect to have “hard cash” equity invested in purchase transactions, while being able to maintain a post-closing liquidity sufficient to service their debt at the levels dictated by the lending institution’s credit department. Most conventional loans also call for an overall net worth equal to or greater than the loan amount requested.
Conventional loan transactions will need to be able to meet a Debt Service Coverage Ratio between 1.15 and 1.55 times (depending on the program) and this ratio is calculated at the underwriting rate dictated by the lender.
Term and amortization depends heavily on the institution providing the funding as well as the property type.
Terms usually range from 3-15 years with amortizations ranging from 10-30 years.
Conventional loans may be non-recourse, limited recourse, or full recourse.
Prepayment penalty structures vary greatly depending on the institution funding the transaction. Typical prepayment structures include; Yield Maintenance, Declining (or step-down) , flat, or may be specially structured to suit a construction or mini-perm loan.
For More Information on conventional commercial loans please visit our conventional loans page.