Freddie Mac Small Balance Loan (SBL): A multifamily loan program for properties with 5-50 units, with loan amounts from $1 million to $7.5 million. Known for competitive rates but strict documentation requirements.
Freddie Mac SBL offers some of the best rates in multifamily lending. The tradeoff: they require institutional-grade documentation from non-institutional borrowers. This is where most deals die.
The lender isn't trying to make your life difficult. They're packaging your loan into a security that gets sold to investors. Those investors demand verification. No verification, no funding.
Loan Parameters
| Loan Amount | $1,000,000 - $7,500,000 |
| Property Size | 5 - 50 units |
| LTV (Loan-to-Value) | Up to 80% |
| DSCR Minimum | 1.20x - 1.25x (see DSCR Explained) |
| Term | 5, 7, or 10 years |
| Amortization | Up to 30 years |
Freddie Mac SBL Rates
Freddie Mac SBL rates are priced as a spread over the relevant Treasury index. Actual rates vary based on property quality, market, borrower experience, and loan terms.
| Loan Term | Index | Typical Spread Range |
|---|---|---|
| 5-Year Fixed | 5-Year Treasury | +175 to +225 bps |
| 7-Year Fixed | 7-Year Treasury | +180 to +235 bps |
| 10-Year Fixed | 10-Year Treasury | +185 to +250 bps |
| Floating Rate | 30-Day SOFR | +200 to +275 bps |
Rate Tip: Freddie Mac publishes current SBL rate sheets weekly through their Optigo network of approved lenders. Your mortgage broker can provide the latest pricing. Rates are typically 25-50 bps lower than comparable bank loans.
Eligible Markets
Freddie Mac SBL is available in all 50 states, but loan terms and pricing vary by market classification:
| Market Type | Examples | Max LTV | Pricing |
|---|---|---|---|
| Top Markets | NYC, LA, Chicago, Dallas, Atlanta, Phoenix | 80% | Best spreads |
| Standard Markets | Most MSAs with 500K+ population | 80% | Standard spreads |
| Small Markets | MSAs with 100K-500K population | 75% | +10-25 bps |
| Very Small Markets | Rural areas, MSAs under 100K | 70% | +25-50 bps, if available |
Market Eligibility Note: Freddie Mac maintains a proprietary market map that determines eligibility. Some tertiary markets may be declined entirely. Your lender can check eligibility before you invest time in documentation.
Documentation Requirements
This is the gauntlet. Every document must be complete, current, and consistent with every other document. One contradiction can delay—or kill—your deal.
Operating Statements (T-12)
T-12 Requirements
- Trailing 12 months of income and expenses, month by month
- Must reconcile to bank statements (variance under 5%)
- Income broken out by category: base rent, Section 8, other income
- Expenses broken out by standard categories
- Year-to-date figures for current period
- Prior two years of operating history (if available)
Rent Roll
Rent Roll Requirements
- Current rent roll dated within 30 days of application
- Unit number, tenant name, lease start/end dates
- Monthly rent amount and rent type (market, Section 8, etc.)
- Security deposit amounts
- Vacant units identified with market rent potential
- Any outstanding balances or delinquencies noted
Bank Statements
Bank Statement Requirements
- 12 months of complete bank statements for all property accounts
- All pages included (no missing pages)
- Account holder name must match borrower or entity name
- Must show deposits that reconcile to T-12 income
Leases
Lease Requirements
- Copies of all current leases
- Lease terms must match rent roll exactly
- Any amendments or addenda included
- Month-to-month tenants identified
Section 8 Documentation (If Applicable)
Section 8 Requirements
- HAP (Housing Assistance Payment) contracts for each voucher holder
- Current payment standards showing contract rent vs. tenant portion
- Bank statements showing HAP deposits (must trace to specific tenants)
- Most recent inspection reports (if available)
Insurance
Insurance Requirements
- Property insurance with replacement cost coverage
- Liability coverage minimum $1M per occurrence
- Flood insurance (if in flood zone)
- Lender named as mortgagee/loss payee
- All buildings on the policy with correct addresses
Common Deal-Killers
These issues cause 80% of Freddie Mac SBL rejections or delays:
1. T-12 Variance
The T-12 shows $300,000 in income. Bank statements show $275,000 in deposits. That $25,000 gap must be explained or it gets excluded from underwriting.
Solution: Reconcile T-12 to bank statements before submission. Document every variance with source evidence.
2. Commingled Funds
Property income mixed with personal income, or multiple properties in one account. Lenders can't isolate the subject property's performance.
Solution: Create a reconciliation exhibit showing which deposits relate to which property. Going forward, use separate accounts.
3. Section 8 in Affiliate Accounts
Government payments hitting a management company account or separate entity. If you can't prove that income flows to the subject property, it doesn't count.
Solution: Provide allocation schedule showing how Section 8 payments are distributed. Include HAP contracts and tenant-level detail.
4. Rent Roll / Lease Mismatches
Rent roll shows Unit 102 at $1,200/month. Lease shows $1,100/month. Which is correct?
Solution: Verify every lease against the rent roll. Provide amendments if rents have changed.
5. Insurance Gaps
Policy shows 4 buildings. Property has 6 buildings. Application denied at the last minute because two buildings aren't covered.
Solution: Review insurance certificate against actual building count before submission.
6. Entity Mismatches
Property owned by "123 Main Street LLC." Bank account in name of "John Smith." Lenders need clear chain of ownership.
Solution: Provide operating agreements, ownership certificates, and authorization documents showing account relationships.
The Underwriting Process
- Initial Submission — You submit all documents. Lender does preliminary review.
- Stips (Stipulations) — Lender requests clarifications. "Explain the $5,000 variance in March." "Provide lease for Unit 205."
- Credit Committee — Deal goes to committee for approval. Any unresolved issues = rejection or conditions.
- Commitment — If approved, you receive a commitment letter with final terms.
- Closing — Final document verification, insurance binding, funding.
Average timeline: 45-60 days from application to funding. Deals with clean documentation close faster. Deals with documentation issues can take 90+ days or die entirely.
How to Prepare
Before you approach a Freddie Mac SBL lender:
- Audit your T-12 against bank statements. Fix variances before submission.
- Verify rent roll against leases. Every unit, every dollar, every date.
- Consolidate Section 8 documentation. HAP contracts, payment schedules, bank evidence.
- Review insurance coverage. Correct addresses, adequate coverage, proper endorsements.
- Document entity structure. Operating agreements, EIN letters, ownership certificates.
The lender will find every discrepancy. You can either address them now, on your timeline—or address them later, under pressure, while your rate lock is expiring.
Freddie Mac SBL isn't hard because the rates are good. It's hard because "good enough" documentation isn't good enough. You need institutional-grade paperwork.