MultiFi - Get your questions answered about multifamily lending

Q: Is MultiFi a direct lender?

Yes, MultiFi is a dedicated platform formed by Berkadia ® , a leader in the commercial real estate industry and an approved Fannie Mae DUS ® and Freddie Mac Optigo ® Small Balance Loan Lender. Our dedicated team of MultiFi partners has a deep understanding of where the Fannie Mae and Freddie Mac small loan programs can be flexible to meet your unique situation. The strength of our partnerships ensures you are getting optimal rates and credit terms. Additionally, there is no extra layer of fees from the use of a broker.

Loan programs

What is an “agency” lender or “GSE”?

The Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC), also known as Fannie Mae and Freddie Mac, respectively, are commonly referred to as “agency” lenders. Both are government-sponsored enterprises (GSEs) created by Congress to provide liquidity, stability, and affordability to the single-family and multifamily mortgage market.

Is MultiFi a direct lender?

Yes, MultiFi is a dedicated platform formed by Berkadia^®, a leader in the commercial real estate industry and an approved Fannie Mae DUS^® and Freddie Mac Optigo^® Small Balance Loan Lender. Our dedicated team of MultiFi partners has a deep understanding of where the Fannie Mae and Freddie Mac small loan programs can be flexible to meet your unique situation. The strength of our partnerships ensures you are getting optimal rates and credit terms. Additionally, there is no extra layer of fees from the use of a broker.

Does MultiFi offer loans in my state?

Yes, MultiFi provides access to Fannie Mae Small Loan and Freddie Mac Small Balance Loan (SBL) programs which are available nationwide. Our dedicated team of MultiFi partners is backed by the experience of closing over 200 multifamily small loans totaling over $600MM across 40+ states.

When can I lock my rate?

With Fannie Mae's Small Loan program, a portion of the rate is not locked until the due diligence period is completed, approximately 30-60 days from the receipt of an executed loan application.

Freddie Mac Optigo Small Balance Loans (SBL) rates are held as of the date of an executed loan application provided that a full due diligence package is delivered to Freddie Mac within 35 business days.

Do you offer supplemental loans?

Yes, supplemental loans are available through the Fannie Mae Small Loan program for properties with an existing Fannie Mae loan.

Who will service my loan?

Berkadia will service your loan. Berkadia is the largest non-bank commercial loan servicer in the industry and has earned the highest primary servicer ratings from Fitch, Standard & Poor’s, and Morningstar.

Are Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs requiring debt service reserves due to COVID-19?

Both Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs are no longer requiring COVID-19 debt service reserves (DSRs).

What are the advantages of getting a loan through the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs compared to my local bank?

More competitive terms that can include higher leverage, longer amortization periods, greater interest only periods, and lower rates
Comparable products (fixed-rate and hybrid ARM loans) with flexible prepayment structures (declining prepayment and shortened yield maintenance periods available)
Non-recourse (with standard carve outs). Most local banks are full recourse.
Longer loan terms available (up to 30 years). Local banks generally prefer not to exceed 5 years
Consistent loan programs and terms available nationwide. Local banks are typically limited geographically and offer unique lending programs with varying terms.
No obligation to open a bank account requiring you to maintain a minimum balance, tying up capital that could be used for other purposes

What are the unique competitive advantages of the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs?

Advantages of Fannie Mae Small Loans vs. Freddie Mac SBL

Offers up to 30-yr fixed rate options (10-yr fixed rate is maximum fixed-rate loan term for Freddie Mac SBL)
Supplemental financing available (not available for Freddie Mac SBL)
Manufactured Housing Community (MHC) is an eligible property type (ineligible for Freddie Mac SBL)
Greater control/flexibility with underwriting and closing timeframe
Greater interest only may be available on longer-term loans than Freddie Mac SBL, as well as higher LTVs with lower minimum DSCRs in secondary and tertiary markets
Hybrid ARM: 30-yr maximum terms and no prepayment penalties during adjustable-rate period (20-yr max term and 1% prepayment penalty during adjustable-rate period for Freddie Mac SBL hybrid ARMs, although 1% penalty is waived if loan is refinanced with Freddie Mac SBL)
Allows a higher concentration of student or military tenants than Freddie Mac SBL
Allows certain fractured condominium properties and properties with private wells or septic (ineligible for Freddie Mac SBL)

Advantages of Freddie Mac SBL vs. Fannie Mae Small Loans

Rate held at application (typically rate is not locked until 30-60 days after executing a loan application for Fannie Mae Small Loan loans)
1.20x min DSCR in Top Markets (vs. 1.25x for Fannie Mae Small Loans unless loan meets certain criteria)
Typically more interest only available than Fannie Mae Small Loans on shorter-term loans
Competitive 5-yr hybrid ARM product (not offered by Fannie Mae Small Loans)
Hybrid ARM rates generally better than Fannie Mae Small Loans hybrid ARM rates
Higher maximum loan amount ($7.5MM vs. $6MM for Fannie Mae Small Loans)
No 0.10% Application fee in Top Markets (Fannie Mae Small Loans 0.10% delivery fee in all markets)
Declining prepayment options typically cheaper (less of an impact to the rate) than Fannie Mae Small Loans

Why might the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs be a better option than Fannie Mae and Freddie Mac’s conventional (larger loan) loan programs?

The Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs offer the following advantages as compared to their conventional counterparts:

Streamlined 3rd party reports (streamlined Property Condition Assessments (PCA) and environmental screening vs. full PCA and Phase 1 required for the conventional programs)
Lower closing costs and upfront deposit
Tailored loan products and features, such as the hybrid ARM and declining prepayment
Freddie Mac SBL will hold rate at application at no additional cost
80% LTV/1.20x is standard for acquisitions and cash-neutral refinances in top markets (1.20x not typically achievable through conventional programs)
Reduced ongoing servicing requirements (annual financials and operating statements vs. quarterly for the conventional programs)

Can I get a pre-qualification or pre-approval?

Unlike the process for purchasing a single-family residence, there is no pre-qualification or pre-approval provided for the Fannie Mae Small Loans or Freddie Mac Optigo Small Balance Loans (SBL) programs. A loan application, or term sheet, is issued after the Lender has conducted a preliminary review of you as the borrower, the property, and requested loan terms.

What is the origination process?

At a high level, the origination process for a Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs available through MultiFi is as follows:

Obtain indicative loan terms by providing basic property information and discussing your unique situation and goals with an expert MultiFi partner
Get quotes by providing additional information and property documents (see here)
Select a quote and execute a loan application summarizing the agreed upon loan terms
Provide necessary due diligence for your loan to be underwritten and approved by the lender as well as Freddie Mac or Fannie Mae (if necessary)
Execute a loan commitment confirming your final loan terms
Lock your rate and close your loan

What are the approximate origination costs?

Typically, there is a minimum origination fee equal to 1.00% of the loan amount plus approximately $17,000-$18,000 in lender closing costs based on Fannie Mae and Freddie Mac small loan program requirements.

	Fannie Mae Small Loans	Freddie Mac SBL
Delivery/ Application Fee¹	$2,000	$2,000
Lender Legal Fees	$6,900	$6,075
Appraisal	$3,800	$3,800
PCA/ESA²	$2,900	$2,900
Zoning Report	$800	$800
Insurance Review Fee	$1,450	$1,450
Credit Reports	$80	$80
Site Inspection Costs	$500	$500
Est. Lender Closing Costs³	$18,430	$17,605

Delivery Fee equal to 0.10% of the loan amount for Fannie Mae Small Loans and Application fee equal to 0.10% of the loan amount for Freddie Mac SBL except in Top Markets; assuming $2.0MM average loan size and Standard market
Streamline PCA and Environmental Screening for Fannie Mae Small Loans; Form 1104 for Freddie Mac SBL
Excludes origination fee (if applicable) as well as recording fees, title costs and survey which you typically pay for directly

Can I request modifications to the loan documents?

Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs typically do not allow any modifications to their loan documents. This ensures a streamlined process and helps keep lender legal fees as low as possible.

How long does it take to close a loan?

The average application to closing timeline is typically 60-70 days. However, if third-party reports are expedited and all due diligence is provided in a timely manner, it may be possible to close within as few as 45-55 days.

Property

Does MultiFi offer loans for vacant land, single-family homes, duplexes, triplexes, or quadplexes?

No, only loans for properties with 5 or more units and a minimum loan amount of $750,000 are eligible.

What property types are eligible?

The Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs offered by MultiFi provide financing for multifamily properties with 5 or more apartment units including properties with the following characteristics:

Properties with certain tax abatements
Properties with short-term rentals, subject to a percentage of the total unit count
Properties with micro-units equal to or less than 350 SF, subject to a percentage of the total unit count
Seniors housing with no resident services
Properties with commercial (non-residential) space or commercial income, subject to a percentage of the total space and income
Properties with no more than 50% student, military, or single employer concentration
Properties with tenant-based rental assistance
Properties with no more than 20% of the units encumbered by a HAP contract
Properties subject to affordability restrictions and/or tax credits lasting no more than two years
Properties with a Master Lease concentration comprising no more than 25% of the total gross potential rent (GPR)
Non-contiguous parcels so long as each parcel has buildings with 5 or more units that meet occupancy requirements and are located within the same MSA
Properties with buildings that have less than 5 units as long as they are located on the same or contiguous parcels
Properties with private wells and/or septic tanks if common in the market
Fractured condominiums (subject to controlling a minimum percentage of the condominium association)
Manufactured Housing Communities (MHCs)
Properties with scenario expected loss (SEL) of less than or equal to 40%

Does MultiFi offer HUD loans such as the FHA 221(d)(4) or 223(f), construction financing, or bridge loans?

Currently, MultiFi offers only the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs which finance stabilized multifamily properties.

How are “stabilized” properties defined by Fannie Mae and Freddie Mac?

To be eligible for the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs, the property must be “stabilized.” Fannie Mae and Freddie Mac require 90% physical occupancy for the trailing 3-months (commonly referred to as “90 for 90”). Certain exceptions below 90% may exist where the subject property has recently been built or undergone significant renovation in the previous year or has experienced another type of unique circumstance temporarily impacting occupancy.

What is a property’s “affordability” and how is it factored into my loan terms?

A property’s affordability is based on the percentage of units that meet the “mission-driven” definitions set by the Federal Housing Finance Agency (FHFA) which are generally based on a ratio of rent to area median income (AMI). Fannie Mae and Freddie Mac typically offer better rates for properties with greater affordability to align their business with their congressional mandate – to provide liquidity, stability and affordability to the mortgage market.

What documents are required to obtain a loan application (aka term sheet)?

At a minimum, you will be required to submit the following documents:

Current rent roll (download our template)
Trailing 12-month operating statement (download our template)
Property operating budget

Additionally, having the following information and documents available can help expedite the process and address potential issues before they arise:

Borrower related:

Ownership structure and percentages
Borrower(s) bio/resume
Estimated net worth, liquidity, and FICO scores of borrower(s)
Borrower(s) schedule of real estate owned (SREO)
Third-party property manager information (if applicable)

Property related:

Commercial (i.e., retail or office) rent roll (if applicable)
Physical occupancy (trailing 12 months)
Cost basis, existing loan amount, and anticipated closing costs such as prepayment penalties (if refinance)
Details on recent or planned capital improvements (if available)
Interior/exterior property photos
Offering memorandum (if available)
Student, military, or other tenancy concentrations (if applicable)
Property-based rent and/or affordability restrictions
Other unique property characteristics such as tax abatements, short-term rentals, micro-units, or residential services such as those provided for certain types of seniors housing.

Does crime at or within the surrounding area of the property impact my terms?

Part of Fannie Mae and Freddie Mac's mission is to provide safe housing for individuals, families and communities. Therefore, crimes committed at your property or within the surrounding area are taken into account. Incidents of violent or drug-related crimes could also have a material impact on property operations in addition to creating headline and securitization risk. Fannie Mae and Freddie Mac also consider “patterns of lesser crime” such as car break-ins and domestic incidents. If crime has been an issue within the past 5 years, you will need to explain how it has been addressed with measures such as adding a security gate or fence around the perimeter of the property, security patrol, or cameras as well as confirming their effectiveness.

How does property condition factor into my loan terms?

Your property should be well-maintained with limited deferred maintenance. Fannie Mae and Freddie Mac take into consideration the condition of a property to determine the amount of replacement reserves that you will need to support the property annually. In general, properties eligible for Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs will need to set aside $200-$300/unit on an annual basis in replacement reserves. For example, a 10-unit apartment building would likely have to allocate $2,000 to $3,000 each year for replacement reserves.

Borrower

Are the loans offered by MultiFi non-recourse?

Yes, the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs available through MultiFi are non-recourse with standard carve-outs. This means only the collateral (your multifamily property) is at risk in the event of default, thereby protecting your other personal assets. Standard carve-outs convert the loan to full recourse in the event of any “bad-boy” acts such as fraud, material misrepresentation or omission, intentionally declaring bankruptcy, or unpermitted transfers.

Many borrowers find non-recourse debt to be especially important when there are partners involved. Non-recourse prevents you from having to sign a personal guarantee when you are not the only key decision maker or lack full control.

What ownership structures are eligible?

The following ownership structures are permitted by the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs:

Individual
Single asset entity (typically in the form of an LLC)
Multiple asset entity (with conditions; typically in the form of an LLC)
Revocable and irrevocable trusts (with conditions)
General partnership
Corporation
Real estate investment trust (REIT)
Tenancy-in-Common (TIC) with five or fewer members
Not-for profit corporations (with conditions)
Funds

Ineligible ownership structures include:

Series LLCs
Transactions with in-place Hard Preferred Equity or Subordinate Debt
Land Trusts/Delaware Statutory Trusts
Pension or Retirement Accounts

What is the minimum required net worth and liquid assets?

To qualify for Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs, individual borrowers or key principals must have combined net worth that equals or exceeds 1x the desired loan amount and liquidity equal to at least 9 monthly payments of principal and interest, or generally ~5-10% of the desired loan amount.

What is the minimum required FICO score?

If the borrower is an individual, a FICO score of 680 or better is typically required. Some flexibility may be available if there are multiple key principals.

How much prior experience owning and/or operating multifamily properties do I need to have?

The Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loan (SBL) programs generally require individual borrowers or at least one key principal to have 2-5 years of experience owning or managing at least 1 multifamily property that is similar in size to the property being financed. Certain waivers or exceptions may be considered.

Do I need to be a US citizen to qualify?

Individual borrowers or key principals must either be a citizen residing in the United States, a permanent legal resident of the United States, or an individual meeting specific foreign key principal requirements. If an entity is requesting the loan, it must be organized in the United States.

If I have a felony, could I still qualify?

Fannie Mae and Freddie Mac rarely lend to individual borrowers or key principals with past litigation or criminal records related to finances. Guarantors must not be involved in any criminal activity including bankruptcy, foreclosure, deed in lieu of foreclosure, or other liquidation proceeding.

Are there any limitations on how far away a property can be located from me?

Fannie Mae and Freddie Mac want individual borrowers or key principals to be actively involved with the operations of the property. If the individual borrower or key principals do not live within 100 miles of the property, a locally experienced third-party property manager or a qualified on-site professional will likely be required to manage the property. Prior experience owning/operating real estate of similar size in the market or similar markets will also likely be required.

Glossary of terms

Term	Definition
Affordability	A property with “affordability” is also commonly referred to as “mission-driven business”; Percentage of a property’s rents that qualify as affordable in accordance with the definitions set by the FHFA which are generally based on a ratio of property rents to area median income (AMI). If a loan is being placed on a property that is “highly affordable”, it is in-line with Fannie Mae and Freddie Mac’s goal of providing affordability to the mortgage market and therefore, typically qualifies for a rate discount.
Agency lender	Government-sponsored enterprise (GSE) including Federal National Mortgage Association (FNMA or Fannie Mae), Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), and the Federal Housing Administration (FHA). Often, the term “agency lender” is used when referring to just Fannie Mae and Freddie Mac as they comprise the vast majority of the agency multifamily market.
Amortization period	Period which is utilized for determining the gradual payoff of the loan amount. In other words, it is the length of time it would take to pay off a loan based on the monthly payments of principal and interest. The longer the amortization, the lower the monthly payment. For Fannie Mae and Freddie Mac loans, the amortization period is typically 30-years. However, the most common loan terms range from 5-12 years. Since the loans do not fully amortize by maturity, the borrower is left with a balloon payment at the end of the loan term that must be paid off usually by either refinancing or selling the property.
Cap rate	Ratio between the annual net cash flow (net operating income less replacement reserves) produced by a property and the underwriting value of that property (typically the purchase price for acquisitions and “as-is” appraised value for refinances).
Debt service coverage ratio (DSCR or DCR)	On an annual basis or over any specified period, the ratio of net cash flow to the total debt service payment. Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs typically require a minimum DSCR of 1.20x – 1.25x, which means this means that the net cash flow must be 1.20 times greater than the debt service payment.
Debt service payment	Payment consisting of principal and/or interest for a specified time period. Think of this as analogous to a mortgage payment on a single-family home. During an interest only period, the debt service consists of payments of interest only and no amortization of principal.
Debt service reserve (DSR)	Reserve account established to fund monthly debt service (principal and interest payments) in the event the borrower is unable to make payments due to unforeseen circumstances. DSRs were put in place for both the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs at the onset of COVID-19 but have since been eliminated for all new loan originations.
Declining prepayment penalty	Also commonly referred to as stepdown prepayment penalty, declining prepayment, fixed prepayment, or DPP. Declining prepayment penalty is the amount a borrower must pay in addition to the outstanding loan amount and any accrued interest at the time of prepayment. This figure is based on a predetermined decreasing percentage of the loan and when the prepayment occurs. For example, a common declining prepayment schedule for a Freddie Mac SBL 5-year fixed or hybrid ARM loan is “5-4-3-2-1.” This means if the loan is prepaid in the first year, the prepayment penalty would be equal to 5% of the outstanding loan amount, if prepaid in year two it would be equal to 4% of the outstanding loan amount, and so on. Borrowers selecting declining prepayment will pay a slightly higher rate for the certainty the fixed schedule provides over a yield maintenance option, as well as the potential to pay a lower prepayment penalty than would be due under yield maintenance, especially in a declining interest rate environment.
Effective gross income (EGI)	Annual net rental income (NRI) plus other income.
Fractured Condominium	Property with a residential condominium regime where the borrower does not own all of the residential units. Fractured condominiums are eligible for the Fannie Mae Small Loans program subject to certain conditions, but not the Freddie Mac Optigo Small Balance Loans (SBL) program.
Government-sponsored enterprise (GSE)	Congressionally chartered quasi-government organizations which include Federal National Mortgage Association (FNMA or Fannie Mae), the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), and the Federal Housing Administration (FHA). Often, the term is used referring to just Fannie Mae and Freddie Mac as they comprise the vast majority of the agency multifamily market.
Gross potential rent (GPR)	Annual actual and potential rent for a property.
Guarantor	Key principal(s) and any other person executing a non-recourse guaranty for the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs. Fannie Mae Small Loans requires that all key principals serve as guarantors, while Freddie Mac SBL allows some flexibility.
Hybrid ARM	A loan product offered through both Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs which consists of 30- or 20-year terms, respectively, with an initial 5-, 7-, or 10-year fixed-rate period, followed by an adjustable-rate period through the end of the loan term. For example, a Freddie Mac SBL 5-year Hybrid ARM has a 5-year fixed rate period followed by a 15-year adjustable rate period.
Interest only (IO) period	Portion of the loan term in which the monthly payment consists of interest only rather than principal and interest. This reduced monthly payment maximizes cash flow which can be used for other purposes such as capital improvements. IO periods typically range from 1-3 years on max leverage loans (80% LTV) and up to full-term on lower leverage loans (55% LTV).
Key principal (KP)	Any person who controls and/or manages the borrower or the property, is critical to the successful operation and management of the borrower and the property, or who has an ownership interest in the borrower. All key principals are required to execute a non-recourse guaranty for the Fannie Mae Small Loans program, while the Freddie Mac Optigo Small Balance Loans (SBL) program provides some flexibility.
Lender	As it relates to the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs, organization approved by Fannie Mae or Freddie Mac to sell or service multifamily loans. MultiFi provides access to multifamily financing for smaller properties with 5 or more units as a dedicated platform formed by Berkadia®, a leader in the commercial real estate industry and approved Fannie Mae DUS® and Freddie Mac Optigo® Small Balance Lender.
Loan application	Also commonly referred to as a term sheet; Document providing a summary of agreed upon loan terms which is executed in good faith by the borrower and lender. Upon receipt of a loan application and an application deposit, underwriting commences, legal is engaged, and third-parties such as an appraisal, streamlined property condition assessment (PCA), environmental screening, insurance review, zoning report, and credit reports are ordered. While Fannie Mae Small Loans rates are not “locked” until due diligence is completed, typically a few days before closing or 30-60 days after receipt of an executed loan application, Freddie Mac Optigo Small Balance Loans (SBL) rates are held as of the date of an executed loan application as long as a full due diligence package is delivered to Freddie Mac within 35 business days.
Loan commitment	Letter outlining the final loan terms and Fannie Mae or Freddie Mac contractually agreeing to purchase a loan that will be delivered by the lender at a future date.
Loan-to-value (LTV)	Ratio of the loan amount to the underwriting value of the property. For arm’s length transactions, the value of the property is typically equal to the purchase price. For refinances, value must be supported by an “as-is” appraisal. Generally, the higher the LTV, the higher the risk of the loan and therefore, the higher the rate. Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs offer LTVs typically ranging from 45-80% LTV but can be customized based on a borrower’s unique goals.
Manufactured housing community (MHC)	Also commonly referred to as mobile home parks; Real estate development with lots on which manufactured homes are located, together with amenities, utility services, landscaping, roads, and other infrastructure. Lots typically include manufactured home (MH) sites as well as some recreational vehicle (RV) sites. MHCs with 50 or more MH sites (or less if a waiver is approved) are eligible for the Fannie Mae Small Loans program, but not the Freddie Mac Optigo Small Balance Loans (SBL) program.
Mission-driven business	Also commonly referred to as a property with “affordability”; Refers to a portion of Fannie Mae and Freddie Mac multifamily volume which qualifies as affordable in accordance with the definitions set by the FHFA which are generally based on a ratio of property rents to area median income (AMI). If a loan is being placed on a property that is “highly affordable”, it is in-line with Fannie Mae and Freddie Mac’s goal of providing affordability to the mortgage market and therefore, typically qualifies for a rate discount.
Multifamily	Any rental housing having five (5) or more dwelling units.
Net cash flow (NCF)	Annual net operating income (effective gross income less operating expenses) less replacement reserve expense.
Net rental income (NRI)	Annual gross potential rent (GPR) less physical vacancy, premiums and corporate premiums, concessions, and bad debt.
Non-recourse loan	Loan which does not hold the borrower personally liable beyond the pledged collateral. If a borrower defaults, the lender can take the property which is serving as collateral for the loan but cannot seek further compensation from the borrower personally in the event the value of the collateral does not cover the outstanding loan amount.
Origination fee	Upfront fee a lender charges to the borrower for underwriting and originating the loan. Typically, the minimum origination fee is 1.00% of the loan amount.
Prepayment premium	Also commonly referred to as prepayment penalty; Amount borrower must pay in addition to the outstanding loan amount and any accrued interest at the time of prepayment. For the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs, prepayment penalties are based on either a percentage of the loan amount ranging from 1-5% or a yield maintenance calculation which takes the difference between the rate of the loan and the yield of a US Treasury bond with a term matching the remaining yield maintenance period (typically 3 months prior to loan maturity), so that the lender achieves the same yield as if the borrower had made all scheduled payments.
Pre-review	Fannie Mae Small Loans “pre-reviews” certain categories of loans deemed to present increased risk. Similarly, Freddie Mac SBL requires “pre-screening” loans that exhibit certain riskier characteristics.
Principal	Person who owns or controls specified interests in the borrower. For Fannie Mae Small Loans, it is specifically defined as any person or entity that holds direct or indirect interests of 50% or more in the borrower. For the Freddie Mac SBL, the threshold is 25% or more.
Rate	Percentage used to calculate the monthly interest and principal payments on a loan.
Replacement reserve	Custodial account established by the Lender and funded by deposits from the borrower over the term of the loan to fund the replacement of capital items at the property.
Short-term rental	Property permitting leases or master leases (including subleases, licenses, and other possessory interests, whether oral or written) of an individual dwelling unit where the intended occupancy of the unit is for less than 30 days, regardless of the stated lease term, such as through a peer-to-peer online marketplace or homestay network (e.g., Airbnb, VRBO®, etc.). Both the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs have strict requirements for the allowable percentage of short-term rentals at a property.
Sponsor	Individual or company serving as the principal equity owner and/or primary decision maker of the borrower (often the key principal).
Spread	The difference between the rate of a loan and any underlying index rate. For multifamily loans, the underlying index rate is generally the yield of a US Treasury bond with a matching term. For example, a 10-year fixed rate loan may be quoted with a 150 bps, or 1.50%, spread over the 10-year US Treasury. While spreads are sometimes shown or quoted for Fannie Mae Small Loans, Freddie Mac SBL loans are “coupon-based,” meaning only an all-in-rate is quoted as opposed to a spread and index rate.
Supplemental loan	Additional loan that can be placed on a property at least 12 months after the origination date of the initial loan that is subordinated to and generally coterminous with the initial loan. Supplemental loans are only available through the Fannie Mae Small Loans program, not the Freddie Mac Optigo Small Balance Loans (SBL) program.
Third-party reports	Also commonly referred to as third-parties; Reports completed by independent sources or suppliers not directly involved with the loan transaction. For the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs, these reports typically consist of an appraisal, streamlined property condition assessment (PCA) and environmental screening (or Form 1104 for Freddie Mac SBL), an insurance review, zoning report, and credit reports.
Underwrite	Also commonly referred to as conducting due diligence; Process by which the lender verifies the creditworthiness of the borrower, combined with financials, characteristics and quality of the collateral (the property), and agreed upon terms of the loan in order to obtain final approval to originate the loan.
Underwriting value	Value of a property as determined by the Lender. Fannie Mae and Freddie Mac typically require that for an arm’s length transaction, or one in which both the buyer and seller are acting in their own self-interest, the value of the property is equal to the purchase price and for refinances, the value is supported by an “as-is” appraisal.
Waiver	Also commonly referred to as an Exception; In terms of the Fannie Mae Small Loans and Freddie Mac Optigo Small Balance Loans (SBL) programs, approval to deviate from the standard terms, rates or program requirements based on the borrower’s unique situation. For example, a borrower may need a waiver to the 90 for 90 stabilized property requirement (90% occupancy for 90 days) because occupancy dipped slightly below 90% for a short period of time due to a tenant move-out.
Yield maintenance prepayment penalty	Amount borrower must pay in addition to the outstanding loan amount and any accrued interest at the time of prepayment based on the difference between the rate of the loan and the yield of a US Treasury bond with a term matching the remaining yield maintenance period (typically 3 months prior to loan maturity), so that the lender achieves the same yield as if the borrower had made all scheduled payments. Borrowers typically select this option when they do not expect to prepay the loan or to achieve a slightly lower rate than a loan with a declining prepayment penalty. The tradeoff is the yield maintenance prepayment penalty can be greater than a declining prepayment penalty, especially in a declining rate environment.

Frequently asked questions

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