Renovation Loans: Freddie Mac's Renovation Loan Options Explored

Freddie Mac's CHOICERenovation loan is a renovation loan that allows borrowers to roll home improvement costs into their mortgage payments. The loan is available to buyers and owners looking to repair or renovate their house, and it offers flexible financing options. CHOICERenovation is similar to the FHA 203 (k) loan and Fannie Mae’s HomeStyle Renovation loan, as they all offer purchase-and-renovation financing with a single loan and closing. CHOICERenovation, however, has a few unique features, such as no interim construction financing to pay off and the ability to finance small-scale renovations with the CHOICEReno eXPress® option.

CHOICERenovation® Mortgage

Freddie Mac's CHOICERenovation® Mortgage is a renovation loan that allows borrowers to finance a home purchase or renovation with a single loan. The loan amount is based on the "as-completed" value of the home, meaning that borrowers can qualify for a higher mortgage based on the property value after renovations. This makes it an attractive option for those looking to buy a fixer-upper or finance small-scale renovations.

CHOICERenovation® is available to any qualified borrower but is particularly beneficial for first-time home buyers, rural home buyers, senior homeowners who need accessibility improvements, and multigenerational households. It offers flexibility, combining renovation mortgages with other Freddie Mac products, such as low down payment mortgages. The minimum down payment can vary, with the option to combine CHOICERenovation® with Freddie Mac's Home Possible® mortgage for a down payment as low as 3%.

The loan allows borrowers to finance renovations that cost up to 75% of a home's value after being fixed, as long as they qualify for the total loan amount. Repairs or improvements must be permanently affixed to the property and add value. Additionally, there is no interim construction financing to pay off, as the loan proceeds are used directly to pay for the renovations.

CHOICERenovation® also provides lenders with the option to sell loans to Freddie Mac before the completion of renovation projects through the Term of Business (TOB). This feature supports the need for affordable housing, especially for borrowers who rely less on savings to pay for improvements.

Renovation Mortgages

Freddie Mac offers renovation mortgages, also known as CHOICERenovation® Mortgages, to help borrowers access permanent financing options to repair, restore, rehabilitate or renovate their existing homes. CHOICERenovation® is a flexible option that can be combined with other Freddie Mac products, including low down payment mortgages.

CHOICERenovation® is designed for borrowers who want to save money by financing a home purchase and home renovation with a single loan. It is open to any qualified borrower, including first-time home buyers, rural home buyers, senior homeowners who need accessibility improvements, and multigenerational households. The loan amount is based on the "as-completed" value of the home, allowing borrowers to qualify for a higher mortgage based on the property value after renovations.

With CHOICERenovation®, there is no interim construction financing to pay off since the proceeds of the mortgage are used to pay directly for the renovations. Renovation costs can amount to up to 75% of a home's value after being fixed up, as long as the borrower qualifies for the total loan amount. The minimum down payment can vary, with a 1-unit primary residence requiring a 5% down payment and a 95% loan-to-value ratio (LTV). The down payment can be as low as 3% if combined with Freddie Mac's Home Possible® mortgage for single-family homes.

CHOICERenovation® also offers CHOICEReno eXPress®, a solution for borrowers looking to finance small-scale renovations, such as aesthetic updates like changing windows or doors. Eligible renovations can amount to 10% of the property's value, and up to 15% in some rural areas, without needing special pre-approval from the lender.

Construction Conversion Mortgages

Freddie Mac's Construction Conversion Mortgages offer a range of competitive sale execution options for loans processed as purchase transactions. These loans are designed to help borrowers secure permanent financing for their homes. This includes repair, restoration, rehabilitation, or renovation work on their existing site-built homes.

Freddie Mac provides resources and materials to help borrowers make informed decisions about their loans. The company offers flexible financing options, allowing borrowers to combine renovation mortgages with other Freddie Mac products, such as low down payment mortgages. This can be especially beneficial for first-time homebuyers who may be looking for a great deal on a fixer-upper property.

The CHOICERenovation Mortgage is one of the options offered by Freddie Mac. This option allows borrowers to use the loan proceeds to directly pay for renovations, without the need for separate interim construction financing. CHOICERenovation also offers the CHOICEReno eXPress® loan, which is suitable for small-scale improvements, such as updating windows or doors.

Freddie Mac's Construction Conversion Mortgages have specific requirements outlined in the Single-Family Seller/Servicer Guide. For example, the Guide states that a Construction Conversion Mortgage may be secured by a newly purchased manufactured home that has never been attached to a foundation. However, all construction and renovations must be fully completed before the sale of the mortgage to Freddie Mac, except for site-built homes meeting specific requirements.

GreenCHOICE Mortgage®

Freddie Mac's GreenCHOICE Mortgage® offering helps families finance energy-efficient home improvements. The company also offers renovation mortgages to borrowers who want access to permanent financing options to repair, restore, rehabilitate or renovate their existing site-built homes.

One of these offerings is the CHOICERenovation® Mortgage, which allows borrowers to purchase a home that needs repairs or to refinance their existing home, and include the necessary funds for renovation in the balance of the new loan. The loan amount is based on the “as-completed” value of the home rather than the present value. CHOICERenovation® is flexible and can be used in a wide variety of scenarios. It is also eligible for use with fixed-rate and adjustable-rate mortgage products.

CHOICERenovation® mortgages may be Home Possible®, HFA Advantage®, super conforming, or HomeOneSM mortgages. The minimum down payment can vary with the number of units and their usage. For example, a 1-unit primary residence would require a 5% down payment, or a 95% loan-to-value ratio (LTV). The down payment can be as low as 3% if combined with Freddie Mac’s Home Possible mortgage for single-family homes.

CHOICERenovation® is also available for small-scale improvements through the CHOICEReno eXPress® loan. Eligible renovations can amount to 10% of the property’s value after the work is done, and in some rural areas, this can go up to 15% without needing any special pre-approval from the lender.

Single-Family Seller/Servicer Guide

Freddie Mac offers renovation loans in the form of CHOICERenovation® Mortgages and CHOICEReno eXPress®. CHOICERenovation® Mortgages allow borrowers to purchase homes and finance the cost of renovations with a single-close mortgage, saving them time and money. CHOICEReno eXPress® is a streamlined renovation mortgage that enables borrowers to finance smaller-scale home renovations.

Freddie Mac also offers construction conversion mortgages that provide permanent financing that replaces interim financing in either a single-close or two-closing transaction. The construction or renovation must be completed before the delivery of the mortgage to Freddie Mac. These mortgages may be purchased, no cash-out, or cash-out refinance mortgages.

Lenders who choose to deliver CHOICERenovation® Mortgages prior to the completion of renovations must obtain prior written approval from Freddie Mac and deliver the mortgages with recourse that will remain in place during the renovation period. Lenders will be required to provide information on their past two years of experience originating and servicing renovation loans. They must also be eligible to sell loans with recourse to Freddie Mac. Lenders with a Freddie Mac account executive can contact them for additional information. Those without an account executive should call 800-FREDDIE for specific information on how to apply for eligibility.

Freddie Mac also offers the GreenCHOICE Mortgage® to help families finance energy-efficient home improvements.

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