Freddie Mac vs. Local Commercial Bank Loan for Small MF

[Brandon Yuan]

Hi BP members:

What's your thoughts on doing a Freddie Mac vs. local commercial bank loan for a small MF apt (acquiring a 30 units apt)?  Freddie Mac loan has its own advantage obviously (non-recourse, fixed rate, 30 year amortization), but it has more stringent qualification requirements, higher closing cost (origination fee, other report like PCA which is not required by local bank, etc), and prepayment penalty (this could be a plus or minus since future buyer can assume the loan depends on how you see it). On the other hand, the local bank (I'm already a client for another loan) has less stringent qualification requirements but it's floating interest rate (based on prime rate), personal guaranteed, and only 20 year amortization. What would you prefer the better option to go and why? Thanks in advance

[Conor Freeman]

@Brandon Yuan

It sounds like you have a pretty good understanding of the Freddie and bank products. I would say the choice will depend on your pressure points, and that may be deal specific. Are you okay with recourse and lower leverage to have lower up-front costs and a flexible prepay. Are you looking for good cashflow with a 30 year am? Are you on the cusp of qualifying for Freddie and may have some headaches getting that box checked? All things to consider.

Its also a relationship play. Getting in with Freddie bodes well for that relationship and future deals, as it does with a local bank; but the bank can only lend in your footprint, may have a cap on an individual borrower etc. In my experience, borrowers move into agency financing after 3-4 deals with their bank(s) and as they start to do larger deals.

You understand the pro's and con's of both so I would get with a mortgage broker (or do it yourself since you already know the bank) and compare the quotes side by side. Run your proforma on both and then make a decision.