Freddie Mac HUD Section 8 Financing

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Freddie Mac Multifamily Loan

Section 8 multifamily properties can provide investors with huge returns on their money. You can use a Freddie Mac HUD Section 8 multifamily loan to help finance the purchase of Section 8 apartment buildings and reap the benefits yourself. This product offers financing for multifamily properties supported by Section 8 project-based contracts or tenant-based vouchers through credit enhancements and/or cash loan purchases. Freddie Mac HUD Section 8 Financing comes in different varieties. Low-Income Housing Tax Credit (LIHTC) properties are eligible for 10 to 30 year terms while non- LIHTC properties are eligible for terms of 5 to 15 years. In addition, this Freddie Mac program allows investors to maximize their leverage with loans up to 90% LTV and as low as 1.15x DSCR for LIHTC properties, and up to 80% maximum LTV and as low as 1.20x DSCR or non-LIHTC buildings.

Freddie Mac HUD Section 8 Financing Highlights

Size: Varies

Term: Cash Loans- 5 year minimum, 15 year maximum

Tax Exempt Financing- 10 year minimum, 30 year maximum

Amortization: Cash Loan- Up to 30 years

                        Tax Exempt Financing- Up to 35 years

Maximum LTV: Cash Loans- 80%

Tax Exempt Financing: 90%

Minimum DSCR:

  • For an apartment building with a project-based Section 8 HAP contract, if the property is in an “above average” market and has a physical vacancy of less than 5% at loan’s origination: 1.20x.
  • When new Low-Income Housing Tax Credit (LIHTC) is present: 1.15x
  • For an Above Market Long-term Section 8 contract, some excess rent may be underwritten.
  • For an Above Market Short-term Section 8 contract, the stabilized net operating income must not include the excess Section 8 rent and the mortgage is underwritten according to Freddie Mac’s other requirements for a Short-term Section 8 contract.


Prepayment Penalty: Cash Loans- Defeasance

Tax Exempt Financing: Yield Maintenance

Subordinate Financing: Permitted, providing it meets additional requirements and analysis

Tax and Insurance Escrows: Required


Eligible Borrowers: Must have demonstrated experience in owning and managing similar Section 8 properties

Eligible Properties: Garden, mid-rise, or high-rise apartment buildings and complexes with Section 8 project-based contracts or vouchers

Type of Section 8 Subsidies:

  • Project-based subsidy: This type of subsidy deals with rental assistance that is associated with a given property as opposed to specific tenants. The property gets a cash payment based on the number of qualifying tenants living in qualifying apartments. This contractual basis for the subsidy is referred to as Housing Assistance Payments (HAP) or Section 8 contract.
  • Tenant-based subsidy: This subsidy is rental assistance that is rooted in specific tenants rather than a specific apartment building. The property receives a cash payment based simply on the number of qualifying tenants. Written authorization, known as a voucher, is provided to the tenant for this subsidy. There are two types of vouchers:
  • Regular vouchers – These are the most common form of vouchers. Payment is generally maxed at the applicable HUD Fair Market Rent, which is a rent ceiling established by HUD for a specific geographic area.
  • Enhanced vouchers – These are special vouchers that are given to tenants in a property that had previously been receiving a project-based subsidy but will no longer be eligible. Typically, this is because the owner has opted out of the Section 8 program or prepaid an FHA or HUD Mortgage. Tenants in these buildings may qualify for enhanced vouchers to assist them to pay the new higher rent for their apartment. The payment standard is typically set at the actual rent to be charged at the property after the Section 8 subsidy terminates.

Other Terms: For the purposes of Freddie Mac underwriting, the Section 8 subsidy is classified as one of the following:

  • Long-term Section 8 contract- can either be a brand new 20-year contract or an existing contract that has a remaining term length equal to or greater than the term of the loan
  • Short-term Section 8 contract- has a remaining term of less than the term of the mortgage


Other definitions pertinent to the Section 8 subsidy are as follows

  • Above Market, which refers to Section 8 rents that are higher than the achievable market rent (rents above market are excess rent) –
  • At or Below Market, which refers to Section 8 rents that are equal to or lower than the achievable market rent


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