Freddie Mac LIHTC Enhancement
Freddie Mac supports tax-credit deals two ways, and which one you need depends on whether your property got 4% credits with bonds or competitive 9% credits without them.
Two Credits, Two Products
Freddie Mac supports Low-Income Housing Tax Credit deals with two distinct published executions, and which one you need depends on which credit your deal got. Properties financed with tax-exempt bonds and 4% credits go to Bond Credit Enhancement with 4% LIHTC. Properties awarded competitive 9% credits, which do not require bonds, go to the 9% LIHTC Cash Loan.
Confusing the two costs weeks. The bond deal has a trustee, an issuer, and a credit enhancement structure. The cash loan is a mortgage.
What Does Credit Enhancement Do?
It puts Freddie Mac's credit behind the tax-exempt bonds so they price at agency levels instead of at whatever the issuer could get on its own. The bond proceeds fund the property; Freddie's enhancement is what makes those bonds sellable at a rate that lets the deal pencil.
Bond Credit Enhancement With 4% LIHTC
Freddie runs this in three modes, and they answer three different questions about where the property is in its life.
| Forward commitment | For to-be-built or substantially rehabilitated properties. Enhancement available during construction with a letter of credit as collateral (funded forward), or a commitment to enhance on successful conversion to the permanent phase (unfunded forward). Maximum forward commitment term 48 months, extensions available |
|---|---|
| Immediate funding | For stabilized properties at 90% occupancy for 90 days with at least seven years left in the LIHTC compliance period. Acquisition, refinance, or credit substitution |
| Preservation rehabilitation | For moderate rehab with tenants in place, sized on projected post-rehab NOI. Cash or letter of credit collateral covers the gap between supportable debt on current NOI and the bond mortgage amount, held until stabilization. Interest only during rehab and stabilization |
| Term | Minimum is the remaining LIHTC compliance period or 15 years, whichever is less. Maximum 35 years. Rehab and stabilization periods up to 24 months count inside the term |
| Minimum coverage | 1.15x fixed rate; 1.20x variable rate with a cap hedge |
| Maximum LTV | Fixed rate: 85% of adjusted value or 90% of market value. Variable rate with cap hedge: 80% of adjusted value or 85% of market value |
| Maximum amortization | 40 years |
| Prepayment | Fee maintenance |
| Subordinate financing | Permitted |
Terms confirmed against the Bond Credit Enhancement with 4% LIHTC term sheet, mf.freddiemac.com/docs/product/bcewith4lihtc.pdf, dated 02/25 and fetched July 31, 2026. Freddie notes adjustments may be made depending on the property, product, or market.
The 9% LIHTC Cash Loan
Same three modes, no bonds. Coverage sits at 1.15x across all three and maximum LTV is 90% of market value. Maximum amortization is 40 years, prepayment is yield maintenance, and the minimum term is the lesser of 15 years or the remaining compliance period, or 15 years with HUD Risk Share, out to a 35-year maximum.
One operational difference matters at the closing table. Only the immediate funding mode is securitizable and only that mode offers early rate-lock and Index Lock. Forward commitments and preservation rehab deals carry neither, and forward commitments add a Delivery Assurance Fee to the fee stack.
From the 9% LIHTC Cash Loan term sheet, mf.freddiemac.com/docs/product/9lihtc.pdf, dated 02/25 and fetched July 31, 2026.
Why Is 1.15x Available at All?
Because a LIHTC property is a different credit. Rents are capped by a recorded regulatory agreement, which limits both upside and volatility, and the credit equity has already reduced the debt the deal needs. Freddie states plainly that a deal with new 4% or 9% credits may be underwritten to a minimum 1.15x coverage.
Against a conventional Freddie loan at 1.25x, that 0.10x plus the 40-year amortization is worth real proceeds on identical net operating income. Our DSCR calculator will show you the difference on your own numbers.
How Does LIHTC Work in the First Place?
Section 42 of the Internal Revenue Code, enacted in 1986, awards federal housing tax credits to developers of qualified affordable projects. Developers sell those credits to investors to raise equity, which reduces the debt the project must carry, which is what lets the property charge lower rents. Investors receive a dollar-for-dollar credit against federal tax liability each year for 10 years, so long as the property stays compliant.
That compliance obligation is the reason lenders care about the remaining benefit stream. Seven years is the threshold Freddie names for immediate funding on stabilized 4% deals.
What About Stabilized Deals That Do Not Need Bonds?
Look at the Optigo Tax-Exempt Loan. Freddie positions it as an alternative to traditional bond credit enhancement for 4% LIHTC properties, with fewer documents and fewer participants. Details are on our tax-exempt loan page.
Send us the allocation, the regulatory agreement, and the sources and uses. We will tell you which of the three executions fits and what it sizes to.
Start here
Get a quote on your deal.
Tell us about the property. We respond with sizing, likely executions, and indicative terms. No cost, no obligation.
Prefer to talk? (561) 556-5777