Freddie Mac’s choice of home improvement loan
A home improvement loan is a smart way to buy a house that is not in perfect condition.
The CHOICERénovation loan is one of the many home improvement mortgages that buyers can consider. As FHA 203 (k) and Fannie Mae HomeStyle Loans, it allows you to factor the costs of improving your new home into your monthly mortgage payment.
Guaranteed by Freddie Mac, the CHOICERénovation loan comes with low down payment requirements and other perks that make buying a home more affordable.
When comparing mortgage lenders, ask if the CHOICERénovation loan is available.
What is the CHOICERénovation loan?
Many existing homes in the United States are old and in need of repair. At the same time, many potential buyers, especially first-time buyers, struggle to find homes that fit their budget.
Buying a renovator with the CHOICERénovation loan can be one way to meet both challenges, says Kelly Marrocco, director of affordable credit and policy at Freddie Mac.
Suppose you find an affordable three-bedroom ranch that was built in 1967, but it still has the original kitchen appliances. Or you fall in love with a pretty farmhouse in a rural area, but the roof has suffered too many hailstorms.
With the CHOICERénovation loan, you can finance homes like these – and the cost of necessary upgrades – all in one loan. The loan also has a refinancing option to help homeowners improve their current homes.
Is the CHOICERénovation loan right for you?
It’s open to any qualified borrower, but Marrocco says Freddie Mac had four types of people in mind when developing the CHOICERenovation loan:
First-time home buyers looking for affordable options.
Rural home buyers who have little choice of new homes.
Older owners who need accessibility improvements to be able to age in place.
Multigenerational households who wish to customize a home to meet the needs of the family.
Borrowers can finance renovations that cost up to 75% of a home’s value after repair, provided they qualify for the full loan amount. For example, you could buy a $ 200,000 house that needs $ 150,000 in repairs, but you will need to meet the credit score and debt-to-income ratio requirements for a $ 350,000 loan.
Track your credit score
We’ll let you know when your score changes and provide you with free information on ways to continue to grow.
New CHOICERenovation provisions as of November 1, 2021
For mortgages that end on or after November 1, 2021, CHOICERenovation loans will cover renovations made under home improvement store programs, provided they meet the requirements of Freddie Mac’s contractor. The loan will cover up to 100% of the cost of materials, as well as other costs described in the contract, including labor.
Borrowers will now be able to use the loan to repay short-term financing that could have been used to repair or renovate an existing home before the loan closes.
The new provisions also give borrowers 60 days to complete renovations before they need to move into the home, which can be especially helpful if the home needs major repairs or renovations that affect security.
How to use the CHOICERénovation loan
Most home improvement loans work the same, although the financial requirements, process, and eligible upgrades may vary slightly. In addition to replacing a leaking roof or upgrading to more efficient appliances, a CHOICERénovation loan can help you:
Protect your home from disasters. The loan can be used to install what Marrocco calls “resilience items” to help a home survive environmental hazards. Particularly useful in disaster prone areas, this layout includes improvements such as storm barriers, foundation upgrades for earthquakes, and brush removal in fire areas. The CHOICERénovation loan can also be used to repair damage caused by a past natural disaster.
Earn a down payment credit. Marrocco claims that qualified borrowers can make their own repairs and improvements. In exchange for their sweat equity, these borrowers can obtain a loan for their down payment, provided that the work is completed before closing.
Do minor renovations? Consider CHOICEReno eXPress
For those looking to buy or refinance a property that only requires cosmetic renovations, such as replacing windows or doors, Freddie Mac’s CHOICEReno eXPress loan might be a better choice. Qualifying renovations can cost up to 10% of the home’s post-renovation value – or up to 15% in some rural areas – without special prior approval from the lender. Renovations must be completed within 180 days and Freddie Mac requires an after-the-fact home inspection to verify that they have been done.
CHOICEReno eXPress is intended to be a more streamlined product, and it will be available to borrowers with closing dates as of November 1, 2021.