Unlocking Small Balance Loans for Multifamily Properties

Guest Speaker: Jack Pomerantz

In this episode, host Lance Edwards delves into the world of small-balance loans for multifamily properties with guest expert Jack Pomerantz from Walker Dunlop. Jack explains the benefits and features of these loans, including non-recourse terms, interest-only payments, and loan amounts ranging from $1 million to $7.5 million.

He also details the eligibility requirements for properties and borrowers, emphasizing the importance of stabilized occupancy and borrower financials. Additionally, Jack highlights the advantages of partnering with experienced investors and accessing Fannie Mae and Freddie Mac’s small balance loan programs.

The discussion offers valuable insights for those new to small multifamily investments and looking to scale up.

Highlights from the Interview:

• Loan Terms & Interest-Only Options:
  • Interest-Only Options: Available for half-term (e.g., first 5 years of a 10-year loan) or full-term (5, 7, or 10 years)
  • Cash Flow Benefits: Interest-only payments maximize cash flow, especially in high-rate environments.
  • DSCR Considerations: Even for full-term interest-only loans, DSCR is calculated on an amortizing basis as a stress test.
• Loan Structure & Eligibility:
  • Loan Amounts: $1M – $7.5M (can go higher).
  • Loan Terms: 5, 7, or 10 years with a 30-year amortization.
  • LTV: Up to 80%, but actual max is dictated by DSCR.
  • Eligible Properties: Stabilized multifamily only (self-storage, hotels, STRs not eligible).
  • Occupancy Requirement: 90% occupancy for at least 90 days (“90 for 90”).
  • Minimum Units: 5+ units (multifamily classification).
• Market & Lending Considerations:
  • Available Nationwide: No strict market exclusions, but LTV and DSCR requirements vary by location.
  • Direct Lending Advantage: Faster approvals, lower costs (fewer middlemen), and reduced fraud risk.
  • Fannie & Freddie: Loans are done through direct lenders, as you can’t approach Fannie Mae/Freddie Mac directly.
• Debt Coverage Ratio (DSCR) Requirements:
  • Top Markets (NYC, Miami, Dallas, Seattle, etc.): 1.20 DSCR
  • Standard Markets (Nashville, Atlanta, etc.): 1.25 DSCR
  • Small Markets: 1.30 DSCR
  • Very Small/Tertiary Markets: 1.40 DSCR

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🔗 Resources:
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