If you are planning a multifamily project with Freddie Mac financing, understanding which soft costs are eligible for inclusion in your loan-to-cost (LTC) calculation can make or break your deal. Freddie Mac multifamily eligible soft costs include architectural fees, engineering costs, legal expenses, permits, appraisals, environmental reports, interest reserves, and tax and insurance escrows. Properly documenting and categorizing these costs can increase your total eligible project budget and help you secure more favorable financing terms.

This guide walks through every category of eligible soft costs under Freddie Mac multifamily programs, explains how LTC differs from LTV, breaks down typical limits, and offers practical strategies for maximizing the soft costs you can include in your loan request.

What Are Soft Costs in Multifamily Construction?

Soft costs are the non-physical expenses associated with developing, financing, and stabilizing a multifamily property. Unlike hard costs, which cover materials, labor, and the physical construction of the building, soft costs encompass the professional services, regulatory fees, financing charges, and administrative expenses that support the project from planning through lease-up.

According to industry data from the Mortgage Bankers Association and Brookings Institution research, soft costs typically account for 20% to 40% of total multifamily project costs. For a straightforward ground-up apartment development, soft costs often fall in the 20% to 30% range. More complex projects involving rezoning, environmental remediation, or affordable housing compliance can push soft costs toward 35% to 40% of the total budget.

The distinction between hard and soft costs matters because lenders, including Freddie Mac, evaluate each category differently when underwriting a loan. Hard costs are generally easier to verify and appraise, while soft costs require more documentation and may be subject to specific eligibility rules.

Which Soft Costs Does Freddie Mac Consider Eligible?

Freddie Mac's Multifamily Seller/Servicer Guide outlines the framework for eligible project costs across its various loan programs, including conventional fixed-rate, moderate rehabilitation, and forward commitment products. The following categories of soft costs are generally eligible for inclusion in project cost calculations.

Architectural and Engineering Fees represent one of the largest soft cost line items. These include fees for building design, structural engineering, MEP (mechanical, electrical, plumbing) engineering, civil engineering, and landscape architecture. According to industry benchmarks, A&E fees typically range from 3% to 8% of hard construction costs, depending on project complexity. Freddie Mac requires that these services be provided by licensed, third-party professionals.

Legal Fees cover real estate closing costs, title insurance, opinion letters, partnership or LLC formation documents, construction contract review, and regulatory compliance counsel. Legal fees generally run 1% to 3% of the total loan amount.

Permits, Inspections, and Impact Fees include building permits, zoning application fees, plan review fees, utility connection charges, school impact fees, traffic impact fees, and fire department inspection fees. These vary significantly by jurisdiction but can represent 1% to 5% of total project costs in high-regulation markets.

Appraisal and Valuation Costs are required for all Freddie Mac multifamily loans. The appraisal must be completed by a Freddie Mac-approved appraiser and must reflect the as-stabilized value of the property. For moderate rehabilitation loans, the appraisal must demonstrate 80% as-improved LTV with fully funded renovation proceeds.

Environmental Reports are mandatory under Freddie Mac guidelines. A Phase I Environmental Site Assessment is required for all transactions, and a Phase II assessment may be needed if the Phase I identifies recognized environmental conditions. As noted in the Freddie Mac Multifamily Seller/Servicer Guide, if environmental issues could materially affect property value, the environmental report must be provided to the appraiser before the appraisal is transmitted to Freddie Mac.

Interest Reserves cover the projected interest payments during the construction or renovation period. For multifamily construction projects, the construction period typically runs 12 to 16 months, and the interest reserve must be sized to cover payments throughout that timeframe. Interest reserve calculations can vary significantly between lenders, with some term sheets quoting reserves that are double what others propose for the same project.

Tax and Insurance Escrows include property tax escrows that must be funded from closing and hazard insurance premiums. Freddie Mac requires monthly escrow deposits for taxes and insurance during the post-construction permanent loan phase.

Survey and Title Costs cover ALTA surveys, title searches, title insurance premiums, and endorsements required by the lender.

How Do Freddie Mac Soft Costs Compare to Other Agency Programs?

Freddie Mac, Fannie Mae, and HUD/FHA each take a slightly different approach to eligible soft costs in multifamily financing. Understanding these differences helps borrowers choose the right program and structure their budgets accordingly.

Freddie Mac's conventional programs focus primarily on stabilized or moderate rehabilitation properties, with LTVs up to 80% based on appraised value. For the moderate rehabilitation program, Freddie Mac allows unfunded loan proceeds to be drawn periodically to reimburse the sponsor for up to 80% of renovation costs as work is completed.

HUD's 221(d)(4) program, by contrast, is a true construction-to-permanent loan that finances ground-up construction. The HUD program has more explicit soft cost categories, including a specific developer fee allowance and working capital reserves of 2% to 4% of the loan amount plus a 3% operating deficit reserve.

Fannie Mae's Multifamily Affordable Housing program and its Moderate Rehabilitation program have similar structures to Freddie Mac but may differ in specific documentation requirements and eligible cost categories.

What Is the Difference Between LTV and LTC for Multifamily Loans?

Loan-to-value (LTV) and loan-to-cost (LTC) are two distinct metrics that lenders use to evaluate multifamily financing requests, and they can produce very different results for the same project.

Loan-to-Value (LTV) compares the loan amount to the appraised market value of the completed, stabilized property. The formula is straightforward: LTV = Loan Amount / Appraised Value. For Freddie Mac conventional multifamily loans, the maximum LTV is typically 80%. This means if a property appraises at $10 million, the maximum loan would be $8 million.

Loan-to-Cost (LTC) compares the loan amount to the total project cost, including land acquisition, hard costs, and eligible soft costs. The formula is: LTC = Loan Amount / Total Project Cost. LTC ratios are used more frequently for construction and value-add projects where the completed value may exceed the actual cost.

The practical difference becomes clear with an example. Consider a 100-unit apartment development with the following budget:

• Land acquisition: $2,000,000
• Hard construction costs: $12,000,000
• Eligible soft costs: $3,500,000
• Total project cost: $17,500,000
• Appraised as-stabilized value: $22,000,000

Using an 80% LTV, the maximum loan would be $17,600,000 (80% of $22,000,000). Using a 75% LTC, the maximum loan would be $13,125,000 (75% of $17,500,000). In this scenario, the LTV-based calculation actually produces a higher loan amount because the property value exceeds total cost. However, lenders often apply the more conservative of the two metrics, meaning the LTC calculation may govern.

For permanent multifamily loans, Freddie Mac primarily uses LTV as the governing constraint. For construction-related products and moderate rehabilitation loans, both LTV and LTC may come into play. Understanding which metric governs your specific loan program is critical for structuring your capital stack.

What Are Typical Freddie Mac LTC and LTV Limits?

Freddie Mac's multifamily loan programs have specific leverage limits that vary by product type, market classification, and borrower qualifications. As of 2026, the following limits generally apply.

For Conventional Fixed-Rate Loans, the maximum LTV is 80% with a minimum debt service coverage ratio (DSCR) of 1.25x. Loans with a DSCR of at least 1.40x and an LTV of 65% or less do not require a refinancing test. Current rates for loans over $6 million start at 5.18% for a 5-year fixed term, 5.23% for 7-year, and 5.30% for 10-year terms.

For Small Balance Loans ($1 million to $7.5 million), LTV limits vary by market classification. Top markets allow up to 80% LTV with a 1.20x DSCR minimum. Standard markets also allow 80% LTV with a 1.25x DSCR. Small markets cap at 75% LTV with a 1.30x DSCR, and Very Small markets are limited to 75% LTV with a 1.40x DSCR.

For Moderate Rehabilitation Loans, the maximum LTV is 80% of the as-improved value. Renovation budgets must fall between $25,000 and $60,000 per unit. Unfunded proceeds are drawn monthly or quarterly as work is completed.

For Value-Add and Lease-Up Properties, Freddie Mac offers specialized programs that account for the property's transition period. These programs may have slightly lower initial LTV limits but allow for future supplemental financing once the property stabilizes.

Borrowers should also consider the FHFA's annual multifamily loan purchase caps. For 2026, Freddie Mac's multifamily loan purchase cap is $88 billion, with at least 50% designated for mission-driven affordable housing. This cap can influence pricing and availability throughout the year, particularly in the fourth quarter. You can explore your options with our commercial mortgage calculator to estimate payments under different scenarios.

How Do Soft Costs Factor Into the LTC Calculation?

The way soft costs are incorporated into the LTC calculation directly affects how much financing a borrower can obtain. Here is a step-by-step breakdown of how the math works.

Step 1: Calculate Total Hard Costs. This includes all physical construction expenses such as site work, foundations, framing, MEP systems, finishes, landscaping, and contingency. For a typical multifamily project, hard costs might range from $150 to $350 per square foot depending on location and quality level.

Step 2: Calculate Total Eligible Soft Costs. Add up all qualifying soft cost line items, including A&E fees, legal costs, permits, appraisals, environmental reports, interest reserves, tax and insurance escrows, and other eligible categories. As noted earlier, this typically runs 20% to 30% of hard costs.

Step 3: Add Land or Acquisition Cost. Include the purchase price of the land or existing property.

Step 4: Sum to Get Total Project Cost. Total Project Cost = Land + Hard Costs + Eligible Soft Costs.

Step 5: Apply the LTC Ratio. Multiply the total project cost by the applicable LTC percentage to determine the maximum loan amount based on cost.

Here is a practical example. Suppose you are developing a 75-unit apartment community:

• Land cost: $1,500,000
• Hard costs: $9,750,000
• Eligible soft costs: $2,437,500 (25% of hard costs)
• Total project cost: $13,687,500
• At 75% LTC: Maximum loan = $10,265,625
• At 80% LTC: Maximum loan = $10,950,000

The difference between including and excluding soft costs is significant. Without the $2,437,500 in soft costs, total project cost drops to $11,250,000, and the maximum loan at 75% LTC falls to $8,437,500, a reduction of $1,828,125. This illustrates why documenting every eligible soft cost is essential for maximizing leverage.

If you are comparing different construction financing options, understanding how each lender treats soft costs in the LTC calculation can help you identify the most favorable terms.

What Documentation Does Freddie Mac Require for Soft Cost Verification?

Freddie Mac's underwriting process requires thorough documentation of all project costs, including soft costs. The Multifamily Seller/Servicer Guide establishes specific requirements that borrowers and their Freddie Mac-approved Seller/Servicers must follow.

Third-Party Contracts and Invoices are the primary form of documentation. All professional service providers, including architects, engineers, attorneys, and environmental consultants, must provide executed contracts or engagement letters detailing the scope of work and fees. Freddie Mac generally requires that these services be performed by independent, licensed professionals rather than affiliated entities.

Permits and Government Fee Receipts must include copies of all building permits, zoning approvals, impact fee invoices, and utility connection agreements. These should match the amounts listed in the project budget.

Appraisal and Environmental Reports must be ordered through Freddie Mac-approved channels. The appraisal must be completed by a Freddie Mac-approved appraiser, and all environmental assessments must follow ASTM standards (E1527-21 for Phase I, E1903-19 for Phase II).

Interest Reserve Calculations must be supported by a detailed draw schedule and interest rate assumptions. The reserve should be sized to cover projected interest payments throughout the construction or renovation period based on the approved construction timeline.

Insurance Certificates must document all required coverage, including builder's risk (during construction), general liability, property insurance, and any specialized coverage required by the lender or local jurisdiction.

How Can Borrowers Maximize Eligible Soft Costs?

Strategic planning during the pre-development phase can help borrowers capture every eligible soft cost and maximize their financing. Here are proven approaches.

Start with a comprehensive project budget. Work with your development team to build a detailed line-item budget that captures every anticipated soft cost. Many borrowers leave money on the table by overlooking smaller items such as traffic studies, acoustic reports, accessibility compliance reviews, or LEED certification costs. While LEED certification is classified as a soft cost, it may also increase hard costs by approximately 2%, though the long-term energy savings and potential tax credits can offset this premium.

Engage professionals early. Hiring your architect, engineer, and legal team during the pre-development phase means their fees are incurred and documented before the loan closes. This creates a clear paper trail and ensures these costs are included in the initial project budget submitted to the lender.

Separate contingency by cost type. Many lenders allow a hard cost contingency (typically 5% to 10%) and a separate soft cost contingency (typically 5% to 10%). Breaking these out rather than using a single blanket contingency can increase your total eligible cost base.

Include developer overhead. Depending on the specific Freddie Mac program and the Seller/Servicer's underwriting, developer overhead or a management fee for project oversight may be an eligible soft cost. This is more common in affordable housing transactions and HUD-insured loans, where the developer fee can range from 8% to 15% of total development cost.

Document everything from day one. Keep organized records of every invoice, contract, permit receipt, and fee payment. Freddie Mac's Seller/Servicers will need to verify each line item during underwriting, and missing documentation can result in costs being excluded from the eligible total.

Consider the timing of your application. Freddie Mac's annual multifamily loan purchase cap of $88 billion for 2026 means that later in the year, particularly in Q4, competition for allocations can increase. Submitting a well-documented loan package early in the year may result in smoother processing and more favorable terms.

For borrowers exploring vertical construction financing, the interplay between soft costs and your overall capital structure becomes even more important. A well-structured project budget that maximizes eligible soft costs can reduce the equity requirement and improve returns.

What Common Mistakes Should Borrowers Avoid With Soft Cost Budgets?

Even experienced multifamily developers can make errors when preparing soft cost budgets for Freddie Mac financing. Here are the most frequent pitfalls.

Underestimating permit and impact fees. Jurisdictions across the country have been steadily increasing impact fees, and some high-cost markets now charge $20,000 to $50,000 or more per unit in combined impact and connection fees. Failing to research current fee schedules can create a significant budget shortfall.

Omitting pre-development costs. Expenses incurred before the formal loan application, such as feasibility studies, market studies, preliminary engineering, and environmental assessments, may still be eligible for inclusion in the project budget. However, they must be properly documented and presented.

Using affiliated service providers without disclosure. Freddie Mac requires that related-party transactions be disclosed and that fees charged by affiliated entities be at or below market rates. Using an in-house architecture firm without proper disclosure and market-rate documentation can result in those costs being disallowed or reduced.

Failing to account for construction period length. Interest reserves are directly tied to the construction timeline. An overly optimistic construction schedule can lead to an undersized interest reserve, while an overly conservative schedule unnecessarily inflates costs. Base your projections on realistic timelines informed by local permitting timelines and contractor availability.

Ignoring the DSCR constraint. Even if your project's LTC and LTV ratios are within Freddie Mac's limits, the debt service coverage ratio must also be satisfied. A minimum DSCR of 1.25x (or higher depending on market classification) means that the property's projected net operating income must support the debt payments. Use a DSCR calculator to verify that your projected income supports the loan amount implied by your cost analysis.

If you are researching what kind of loan works best for a multifamily property, comparing how different programs treat soft costs is one of the most important factors in your analysis. You may also want to explore how much money is needed to build an apartment complex for broader context on total development budgets.

What Role Do Soft Costs Play in Affordable Housing and Mission-Driven Lending?

Freddie Mac has placed increasing emphasis on affordable and workforce housing, with at least 50% of its $88 billion 2026 multifamily purchase cap designated for mission-driven transactions. Soft costs play a particularly important role in these deals because affordable housing projects often carry higher soft costs as a percentage of total development cost.

Affordable housing developments frequently require additional professional services such as Low-Income Housing Tax Credit (LIHTC) compliance consulting, fair housing analysis, community engagement facilitation, and environmental justice reviews. These additional soft costs can push the soft cost percentage to 30% to 40% of total project costs.

Freddie Mac's Targeted Affordable Housing programs, including non-LIHTC forward commitments, provide unfunded forward commitments for affordable housing developed by nonprofits and subsidized, rent-restricted affordable housing by for-profit developers. These programs allow for new construction or substantial rehabilitation and have specific provisions for soft cost inclusion.

For developers pursuing conduit loan structures or other securitized financing, the treatment of soft costs can differ from portfolio lending. Understanding these distinctions is essential for structuring the right capital stack.

Frequently Asked Questions

Does Freddie Mac finance multifamily construction and rehabilitation projects?

Yes, Freddie Mac offers several multifamily loan products that support construction-related activity. The Moderate Rehabilitation program finances renovations of $25,000 to $60,000 per unit with up to 80% LTV on the as-improved value. Freddie Mac also provides forward commitment products for new construction and substantial rehabilitation, including targeted affordable housing programs for nonprofit developers. Each program has specific soft cost eligibility requirements, so borrowers should work with an approved Seller/Servicer to determine which costs qualify under their chosen product.

What percentage of total project costs do soft costs typically represent in multifamily development?

Soft costs typically account for 20% to 30% of total multifamily project costs for standard ground-up developments. More complex projects involving affordable housing compliance (such as LIHTC), environmental remediation, or projects in heavily regulated jurisdictions can see soft costs reach 35% to 40% of total costs. Architectural and engineering fees represent one of the largest individual line items at 3% to 8% of hard construction costs, while interest reserves, permits, and legal fees collectively add another 10% to 20%. Use our commercial mortgage calculator to model how different soft cost levels affect your total project budget and financing.

What is the maximum LTV for Freddie Mac multifamily loans in 2026?

The standard maximum LTV for Freddie Mac conventional multifamily loans is 80%. For Small Balance Loans ($1 million to $7.5 million), the maximum is 80% in Top and Standard markets but drops to 75% in Small and Very Small markets. The moderate rehabilitation program caps at 80% of the as-improved value with funded renovation proceeds. All programs also require minimum debt service coverage ratios ranging from 1.20x to 1.40x depending on market classification, and the DSCR constraint frequently becomes the binding limit on actual loan proceeds.

Can interest reserves during construction be included in Freddie Mac soft costs?

Yes, interest reserves are an eligible soft cost for Freddie Mac multifamily loans that involve a construction or renovation period. The reserve must be sized to cover projected interest payments throughout the construction timeline, which typically runs 12 to 16 months for multifamily projects. The calculation requires a detailed draw schedule and interest rate assumptions, and these estimates can vary significantly between Seller/Servicers. Borrowers should compare term sheets carefully because an overly conservative interest reserve assumption unnecessarily inflates carrying costs, while an undersized reserve creates mid-construction shortfalls.

How does Freddie Mac's 2026 multifamily loan purchase cap affect borrower access?

Freddie Mac's 2026 multifamily loan purchase cap is $88 billion, a 20.5% increase from 2025. At least 50% must be allocated to mission-driven affordable housing, and workforce housing loans are exempt from the cap. This expanded capacity supports continued liquidity for multifamily acquisition, refinance, and rehabilitation programs. However, later in the year - particularly in Q4 - competition for remaining allocations can increase, potentially affecting pricing and processing times. Submitting a well-documented loan package early helps ensure smoother execution.

How can borrowers separate contingencies to maximize eligible soft costs?

Splitting your budget into separate hard cost and soft cost contingency line items can increase your total eligible cost base for LTC purposes. Freddie Mac Seller/Servicers generally accept hard cost contingencies of 5% to 10% and soft cost contingencies of 5% to 10%, depending on the project type. For rehabilitation projects, higher contingency reserves are typical due to unforeseen conditions. Maintaining distinct contingency pools rather than a single blanket percentage gives the underwriter clearer visibility into your risk assumptions and may result in more favorable treatment during the DSCR and debt yield analysis.

Multifamily developers who take the time to understand and properly document their eligible soft costs consistently achieve better financing outcomes. Whether you are pursuing a conventional acquisition, a moderate rehabilitation, or a ground-up affordable housing development, getting the soft cost analysis right is one of the highest-leverage activities in the entire development process. Reach out to Clear House Lending to discuss how we can help structure your next multifamily financing with Freddie Mac. You can also learn more about whether it is hard to get a multifamily loan and what steps you can take to improve your approval odds.