Written By: Joel Palmer, Op-Ed Writer
Freddie Mac has launched a mortgage product that enables buyers to finance a home and renovations with a single-close transaction.
The CHOICERenovation loan is available for purchases and no cash-out refinancing to eligible lenders nationwide.
In its announcement, Freddie said the new offering is designed to address the aging supply of housing as well as support affordable housing needs.
“Research indicates a large number of older homes need repair and renovation, either to meet the needs of current owners or as a viable option for new homebuyers,” said Danny Gardner, a senior vice president for Freddie Mac.
According to Freddie Mac, the renovation marketing has grown more than 50 percent since 2009. In addition, nearly 80 percent of the country’s housing stock is at least than 20 years old, while 40 percent is at least 50 years old.
“Given the increasing age of existing housing stock, the growing number of millennial and other first-time homebuyers looking for more affordable homebuying options, and the increase in retirees opting to age in place, the Freddie Mac CHOICERenovation mortgage is a flexible solution to finance or refinance these fixer-uppers,” added Gardner.
“The CHOICERenovation solution gives borrowers the opportunity to make improvements, renovations and upgrades to a home using a purchase or no cash-out refinance loan that will be eligible for sale to Freddie Mac,” said Gardner. “This provides the borrower with a convenient cost saving option for financing renovations.”
Lenders can sell CHOICERenovation loans to Freddie Mac where the loan proceeds are used to pay for the renovations. If lenders deliver the loans after the renovations are complete, they can sell these loans to Freddie Mac without recourse. If lenders want to deliver the loans during the construction period, they must obtain prior approval.
Freddie said a unique feature of CHOICERenovation is that buyers can use funds to renovate or repair a property damaged in a natural disaster. Financing can also be used for renovations to prevent damage from a future disaster, such as work on storm surge barriers, foundation retrofitting, or retaining walls.
Other key features include:
•Eligibility for appraised value representations and warranty relief through Loan Collateral Advisor.
•Eligible renovation costs that include housing resilience and energy efficiency.
•Term of Business (TOB) path available for eligible sellers to deliver loans before renovations are complete.
•The ability to draw 50 percent of the material costs at closing.
CHOICERenovation can be used with fixed-rate, adjustable-rate, Home Possible, HomeOne, and super conforming mortgages.
Eligible properties include 1-4 unit primary residences, manufactured homes, one-unit second homes, and one-unit investment properties. Units located in planned unit developments (PUDs), condominiums, cooperatives (if permitted under the Seller’s Purchase Documents) or leasehold estates are also acceptable.
Maximum loan-to-value ratios range from 80 percent for 3-4 unit primary residences to 95 percent for 1-unit primary residences and manufactured homes.
CHOICERenovation is similar to Fannie Mae’s HomeStyle Renovation. It enables borrowers to finance improvements to a home at the time of purchase or as a refinance for up to 75 percent of the as-completed appraised value.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.