Both Freddie Mac and Fannie Mae Allow Some Commercial Space
Both Freddie Mac and Fannie Mae provide financing for mixed-use multifamily properties, under certain conditions. Freddie Mac requires that the property’s commercial income does not exceed 25% of the property’s gross income. In contrast, Fannie Mae requires that no more than 20% of a building’s net rental space be allocated for commercial purposes and that no more than 20% of a property’s effective gross income comes from commercial space.
Specific Commercial Space Usage Matters
When looking to finance a mixed-use property with a Freddie Mac or Fannie Mae multifamily loan, the exact use of the commercial space matters. In general, both the GSE and the lender must believe that the commercial use will contribute to, rather than detract from, the overall income of the property, and ideally, will increase the property’s DSCR (debt service coverage ratio) over time.
These rules generally apply to both traditional Freddie Mac financing, as well as for loans issued under the increasingly popular Freddie Mac Small Balance Loan (SBL) program.
Single-Family Loans Also Allow for Commercial Space
While this article is mainly designed to address Freddie Mac multifamily loans, it should be noted that Freddie Mac also allows for some degree of commercial space for its single-family loan programs.
In order for a single-family mixed-use property to be financed by Freddie Mac, the property must be one unit, must be the borrower’s primary residence, and the commercial section of the property needs to be fully owned by the borrower as their personal business.
Other requirements include:
Properties must be located in a residential neighborhood
Properties need to conform to local zoning requirements
Properties may not be modified in such a way that negatively impacts their marketability as primary residences
The commercial use must not negatively impact either the habitability or safety of the property
Common uses for single-family mixed-use commercial areas include small businesses such as doctor’s offices, realtor’s offices, accountant's offices, and other small professional service firms.