Affordable Refi

Revised federal credit terms

By Erica Rascón on May 19, 2016 in News

Low vacancies and high rents have positioned the market in your favor. Since the fourth quarter of 2009, apartment values have increased by more than 120 percent. If you are stuck in recession-time financing, make these market improvements work for you by refinancing your affordable property.

As a result of revised terms, affordable, B-, and C-class properties are now eligible for new products through Freddie Mac Multifamily. Products range from $1 million to $5 million for properties with as few as five units. The organization funded more than $2.5 billion in small loans last year.

To qualify for a cash-out refinance, properties must meet the “four S” credit standards of Freddie Mac Multifamily:

1. Safe: A property with minimal crime on site, effective security, and a competent management team makes a good candidate.
2. Stable: Stable cash flow and timely capital expenditures are two signs of a low-risk property.
3. Structure: Properties that are code compliant and show steady maintenance records are enough to get you through the door. If your building has unique architectural details, you can gain a competitive advantage.
4. Sponsor: The owner must demonstrate a net worth equal to the loan amount and liquidity equal to nine months of principal and interest.

Once you meet those guidelines, then it is time to present your affordable property in the best light. These are the steps recently recommended by Freddie Mac Multifamily to maximize the potential of your refinance:

1. Compile at least three years of historical annual operating financial statements and monthly rent rolls.
2. If you have made capital improvements to the property, be sure to record them on your statements. Improvements shared in an agreement between you and your tenants are also of interest.
3. Round up your maintenance records. Lenders want to see that the property is well maintained. Deferred maintenance (or a lack of documentation regarding performed maintenance) may result in losing some of your proceeds to escrow to assure that repairs are performed.
4. Identify months with sizeable spikes in vacancy or expenses. Numerous spikes are be a deterrent for lenders. In isolated incidents, an explanation of the spike may be sufficient.

Interest rates are still near historic lows. By refinancing your affordable property, you can enjoy the benefits of a low-interest loan and profitable rents. To learn more, visit www.freddiemac.com/multifamily.