Freddie Mac is joining the renovation loan space. While the Federal Housing Administration and Fannie Mae have had programs that allow borrowers to wrap home improvements into a purchase or refinance loan for years, Freddie announced its product Wednesday.
Known as CHOICERenovation, the program allows buyers to include the financing of their home improvements with their purchase loan, saving them money with one set of closing costs. Just like FHA’s 203k and Fannie Mae’s HomeStyle loans, this program is available to homeowners who want to refinance and improve their home at the same time.
“We realized that there’s a significant amount of aging housing stock and a severe lack of affordable housing,” says Kelly Marrocco, credit policy director at Freddie Mac. “This loan program provides people with the opportunity to buy or refinance older properties and include the cost of repairs in their loan.”
Like Fannie Mae’s HomeStyle, CHOICERenovation allows investors to purchase and renovate a one-unit property without residing in it. The FHA 203k requires borrowers to live in the property for at least a year. All three programs require a borrower to live in one unit of a two-to-four-unit building.
Unlike FHA 203k, CHOICERenovation doesn’t require a consultant to approve the project. Another difference from FHA 203k is that any renovation or repair can be financed with this loan as long as the work involves something permanently attached to the property, Marrocco says.
“You can even finance an accessory dwelling unit, as long as this would be in compliance with local zoning rules,” Marrocco says. “We want this loan to help millennials, seniors and multigenerational households adapt a house to meet their needs.”
CHOICERenovation can be used for “housing resilience” items that repair damage or can help a home withstand a natural disaster, Marrocco says. These projects include storm surge barriers, foundation retrofitting for earthquakes, hazardous brush and tree removal in fire zones, and retaining walls.
The requirements for down payments and loan qualification are consistent with other Freddie Mac loan programs; some borrowers can make a 3 percent down payment. While borrowers cannot raze a property and rebuild it with this program, they can finance home improvements that cost up to 75 percent of the appraised value of the home after renovation. For example, if a property appraises for $400,000 after improvements, a borrower could finance up to $300,000 worth of renovations.
For more information about FHA 203k, Fannie Mae HomeStyle or Freddie Mac’s CHOICERenovation, contact a local lender.