Apartment Financing Options for LIHTC Properties
Find out about your multifamily/apartment financing options for LIHTC properties.
While Low-Income Housing Tax Credits fund a certain portion of an affordable housing project, the rest will typically still need to be financed with a loan. Common apartment loan options for LIHTC properties include HUD apartment loans, as well as Fannie Mae and Freddie Mac apartment loans. Bank and CMBS loans can be used, but they don’t tend to include the additional affordability incentives that agency and HUD financing options do.
For example, HUD multifamily loans like the HUD 221(d)(4) and HUD 223(f) both allow LTVs of up to 87% for properties with an affordability component, even going as far as permitting LTVs up to 90% for properties with 90% or more low-income units. They also offer a discount of 0.45% on annual MIP for LIHTC or Section 8 properties (market-rate properties must pay 0.65% annually).
Fannie Mae and Freddie Mac also offer a plethora of loan options for affordable properties, including some financing options specifically geared towards the LIHTC program. The Freddie Mac Bond Credit Enhancement with 4% LITHC, for instance, is designed to provide forward commitments for both new construction and substantial rehabilitation of LIHTC properties which are able to maintain at least 90% occupancy for 90 days. The program also provides preservation rehabilitation funds for projects undergoing moderate rehab with tenants in place.
Additionally, the traditional Freddie Mac LIHTC Enhancement provides an added degree of protection for LIHTC investors in the case that an owner/operator defaults on their loan note, which makes it substantially easier to attract LIHTC investors to a project. As if that wasn’t impressive enough, Freddie Mac Tax-Exempt Loans provide up to 30 years of financing for 4% LIHTC projects. If your LIHTC property is also part of the HUD Section 8 program, as some are, you may wish to make use of Freddie Mac HUD Section 8 Financing, which permits LTVs up to 90% and DSCRs as low as 1.15x for LIHTC properties.
In comparison, Fannie Mae offers its own LIHTC-focused products including the Fannie Mae MBS as Tax-Exempt Bond Collateral (M.TEB), which can be utilized for existing bond refunding and new issues for 4% LIHTC properties. This financing product allows LTVs up to 90% and permits interest-only financing for eligible borrowers. Another similar option is the Fannie Mae Credit Enhancement of Variable Rate Tax-Exempt Bonds (Index Bonds), which also permits LTVs up to 90% for eligible 4% LIHTC properties.