Advice for Borrowers Seeking Multifamily Property Loans with Freddie Mac
It’s prime time to talk Freddie Mac Loans. Freddie Mac helps generate loans to large borrowers at highly competitive rates. This summer is no exception as low interest rates offer plenty of incentive for large borrowers to refinance or purchase multifamily residential property. But understanding Freddie Mac’s function, and the process required to secure a large multifamily loan, are important to achieve goals efficiently.
Holmquist + Gardiner helps borrowers successfully acquire Freddie Mac loans in order to refinance or purchase multi-family residential properties. These are properties with a minimum of five units per building that cater to urban life. When seeking funding over $5 million, it’s important to be prepared. Below are a few helpful tips and pieces of advice to reduce mistakes and help you achieve your business goals.
Understanding the Freddie Mac Loan Model
Freddie Mac is a government organization, backed by the Federal Housing Finance Agency (FHFA), that provides stable funding for the mortgage lending industry. However, Freddie Mac doesn’t work directly with borrowers. Banks, credit unions and other traditional financial institutions still lend money directly to the borrower. After one of these traditional lenders completes a loan with a borrower, the lender sells that loan to Freddie Mac.
This relationship between traditional lenders and Freddie Mac eases overall industry risk for lenders and helps facilitate further borrowing across real-estate markets. Any loan purchased by Freddie Mac must meet selective criteria. This is why any borrower seeking large multifamily loans in excess of $5 million, must consult outside counsel for a loan opinion. It’s mandatory. Legal opinion is required to draft documentation and provide agreement that what the borrower is promising is indeed true and conforms to the law.
Helpful Advice Borrowers Should Consider When Seeking a Multifamily Loan
Get your checklist in order. Any legitimate lender will provide a potential borrower with a checklist that lays out all the loan requirements. This information outlines the steps to come, as well as vital information that is considered for document drafting. Structuring the borrower entity is important. For example, is a single member entity necessary or will a limited partnership suffice? This information shapes what the opinion letter will look like and defines who the borrower is for the lender, and for Freddie Mac.
Don’t ignore the future details. Future business operations of your property management organization may be considered in the loan agreement. For instance, in certain scenarios Freddie Mac will require borrowers to have a special manager, or “springing member” in place in the event of unforeseen circumstances. A springing member is a person who is not a member of the borrower’s organization but is identified in the entity’s organizational documents and the loan documents as an immediate, legal representative with management authority.
Don’t delay consulting an expert legal opinion. I saved the most important piece of advice for last: Start early. Too often, borrowers become their own worst enemy when they initiate the relationship with a legal representative too late. Consult with a legal professional in advance to make sure any necessary laws, risks and legal requirements are understood or properly obtained. A legal expert with experience drafting loan documentation for Freddie Mac will be able to identify any limitations the borrower may face when seeking to meet Freddie Mac’s strict standards.
Why Starting Early Matters When Seeking a Low Interest Loan Rate with Freddie Mac
From the moment a multifamily quote is accepted, it is standard for Freddie Mac to lock interest rates for 90 days for multifamily properties. Within that 90-day period, there are important target delivery dates for materials and the underwriting process. Miss a target delivery date and the anticipated interest rate is jeopardized. Additional leeway beyond 90 days is provided for affordable housing, as well as senior and manufactured home communities.
Recruiting outside counsel early will streamline the process by making sure that all aspects of the loan process are in order. Expect 30 - 45 days for loan paperwork to be drafted and submitted to the lender to initiate Freddie Mac’s strict timeline.
To lock in the right interest rate and succeed in acquiring a Freddie Mac loan to support your business goals, it’s important to be your own best advocate. It’s the key to mitigating risk and streamlining the overall loan process. With multiple stakeholders involved in the process, consulting outside counsel early will make sure that you’re prepared and properly advised for the road ahead.
Holmquist + Gardiner provides clients with honest and efficient legal counsel that achieves results. Our attorneys are experts at providing large loan borrowers with the tools and guidance they need to accomplish their business goals. If you’re interested in pursuing a multifamily Freddie Mac loan, contact us today.
