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You’ve been searching for your dream house, but you haven’t had any luck yet. Maybe none of the houses you’ve seen have fit your vision for what you want in a home. Or maybe you’ve found beautiful properties, only to see them snapped up by someone else in a bidding war.

Before you get discouraged, consider a Freddie Mac CHOICERenovation® loan.

This conventional renovation loan allows you to buy a home and remodel with a single, low down payment mortgage.

What's in this Article?


               What is a Freddie Mac CHOICERenovation® loan?      
               


                   

               


           




               How much can you borrow?      
               


                   

               


           




               How does a Freddie Mac CHOICERenovation® loan work?      
               


                   

               


           




               Other renovation loans      
               


                   

               


           




               Frequently asked questions      
               


                   

               


           




               Key takeaways      
               


                   

               


           



What is a Freddie Mac CHOICERenovation® loan?

A Freddie Mac CHOICERenovation® (pronounced “choice renovation”) loan is a conventional loan that homebuyers can use to buy and fix up a property.

Freddie Mac CHOICERenovation® loan advantages

  • Low down payment: First-time homebuyers can qualify for a Freddie Mac Home Possible CHOICERenovation® loan with as little as 3% down if the property they’re buying will be their primary residence. Non-first-time homebuyers will need to put down at least 5%
  • Expands the types of homes to consider: The number of homebuyers currently exceeds the number of available houses on the market. A Freddie Mac CHOICERenovation® loan opens up new possibilities, and new properties to consider, because you can buy a house that needs some work and renovate right away
  • Can be used for luxury remodels: Freddie Mac CHOICERenovation® loans can be used for luxury installations and enhancements, as well as structural additions and improvements and cosmetic renovations 
  • Lock in your interest rate: Importantly, you can lock in your interest rate on the home purchase and renovation costs, which is an advantage right now as interest rates are going up

The option to make luxury enhancements and additions distinguishes conventional renovation loans from government-backed renovation loans. Possible upgrades might include:

  • Installing an in-ground pool
  • Putting in a paved outdoor fireplace or entertainment area
  • Adding a luxury master suite to the home
  • Installing high-end appliances
  • Building a gazebo in the yard
  • Adding a retaining wall to your landscaping
  • Retrofitting old appliances and fixtures

You can use a Freddie Mac CHOICERenovation® loan to purchase several different property types:

Freddie Mac CHOICERenovation® loans may be used to purchase a home or to do a no cash-out refinance on your current property.

Related reading: How a Fannie Mae HomeStyle Loan Can Help You Hack a Red-hot Housing Market

How much can you borrow with a Freddie Mac CHOICERenovation® loan?

You can borrow up to your preapproved amount for the home purchase and renovations combined.

What does that mean? Before you start looking at houses, you’ll need to get preapproved with a mortgage lender. If you’re interested in a renovation loan, it’s worth calling different companies to make sure they are Freddie Mac CHOICERenovation®lenders before you get preapproved.

Fairway offers these and several other renovation loans.

Your preapproval* letter will tell you the maximum amount you can borrow. That number is your total buying power for the home plus renovations.

Let’s look at an example. If you are preapproved for $350,000 and you find a home for $275,000, you can use the remaining $75,000 toward renovations.

This is different from some other renovation loan programs, specifically, the FHA 203k Limited and USDA Limited renovation loans. Both of those loans allow you to finance up to $35,000 in renovations, minus contingencies and fees. (After the fees, the funds available for home improvements is typically around $31,000.)

Down payment requirements

How much you need to put down on a Freddie Mac CHOICERenovation® loan depends on the property you’re buying a:

  • Single-family home as primary residence: 3% down if you’re a first-time homebuyer, 5% down if you’re not a first-time homebuyer. Note that first-time homebuyer means you have never owned a home or you haven’t owned a home in the past three years
  • Manufactured home: 5%
  • Duplex as primary residence: 15%
  • Triplex or quadplex as primary residence: 20%
  • Second home: 10%
  • Investment home: 15%

How does a Freddie Mac CHOICERenovation® loan work?

Overall, buying a home with a Freddie Mac CHOICERenovation® loan works similarly to buying with any other type of loan. But there are a few additional steps:

  1. Get preapproved
  2. Find a property
  3. Make an offer
  4. Go under contract
  5. Get quotes and a formal estimate for renovations from a contractor
  6. Schedule an appraisal and a home inspection
  7. Close on the home
  8. Renovation work begins

Once you’ve gone under contract, the formal loan application process begins. With a renovation loan, you’ll need to get a formal bid for the renovation work from a licensed contractor.

Your lender needs this information to verify the home’s eligibility and that the costs fall within your preapproval range. They will also review the appraisal report to ensure that the post-renovation home value will be commensurate with how much you’re borrowing.

Lenders cannot approve loans for more than a home is worth, so this is a critical step in getting approved.

After you close on the loan, your loan goes into a “draw period.” This is when your lender will start issuing payments to your contractor, who can begin work on the home.

The renovations should be complete within six months. But if you run into timeline issues because of supply chain issues, labor shortages, or other hurdles, your lender may be able to grant you an extension.

Related reading: Struggling to Find a Home In This Market? Buy An Ugly House.

Alternatives to Freddie Mac CHOICERenovation® loans

Freddie Mac CHOICERenovation® mortgages aren’t the only types of low down payment home renovation loans out there. In fact, there are several different options, and all of them have low down payment requirements.

The right one for you will depend on your finances, credit score, and where you plan to buy. Your lender can walk you through all of your loan options when you get preapproved.

But it helps to have an idea of the different renovation loan options and how they compare.




Freddie Mac CHOICERenovation





Credit score: 620






Down payment: 3% (Using Home Possible CHOICERenovation®)






Types of renovations allowed: Structural, cosmetic, luxury upgrades






Amount you can borrow**: Up to your preapproval amount for purchase plus renovations






Mortgage insurance requirement: Private mortgage insurance (PMI) if down payment is less than 20%. You can request PMI removal when you have 20% equity









Fannie Mae HomeStyle




Credit score: 620






Down payment: 3%






Types of renovations allowed: Structural, cosmetic, luxury upgrades






Amount you can borrow**: Up to your preapproval amount for purchase plus renovations






Mortgage insurance requirement: Private mortgage insurance (PMI) if down payment is less than 20%. You can request PMI removal when you have 20% equity








FHA 203k Limited




Credit score: 580






Down payment: 3.5%






Types of renovations allowed: Cosmetic only






Amount you can borrow**: Purchase price plus up to about $31,000 for renovations (assuming the total is within your preapproval amount)






Mortgage insurance requirement: Upfront mortgage insurance premium of 1.75% of the loan; ongoing MIP typically 0.85%/yr paid monthly, removed by refinancing to conventional at 20% equity









FHA 203k Standard




Credit score: 580 (some lenders require 620)






Down payment: 3.5%






Types of renovations allowed: Structural and cosmetic






Amount you can borrow**: Up to your preapproval amount for purchase plus renovations






Mortgage insurance requirement: Upfront mortgage insurance premium of 1.75% of the loan; ongoing MIP typically 0.85%/yr paid monthly, removed by refinancing to conventional at 20% equity








USDA Limited




Credit score: 640






Down payment: 0%






Types of renovations allowed: Cosmetic only






Amount you can borrow**: Purchase price plus up to about $31,000 for renovations (assuming the total is within your preapproval amount)






Mortgage insurance requirement: Upfront mortgage insurance fee of 1%; ongoing fee 0.35%/yr paid monthly, removed by refinancing to conventional when you reach 20% equity









USDA Standard




Credit score: 640






Down payment: 0%






Types of renovations allowed: Structural and cosmetic






Amount you can borrow**: Up to your preapproval amount for purchase plus renovations






Mortgage insurance requirement: Upfront mortgage insurance fee of 1%; ongoing fee 0.35%/yr paid monthly, removed by refinancing to conventional when you reach 20% equity





Related reading: Can You Buy a Fixer-upper With a USDA Loan?

VA renovation

Credit score: 580

Down payment: 0%

Types of renovations allowed: Cosmetic only

Amount you can borrow**: Purchase price plus up to about $31,000 for renovations (assuming the total is within your preapproval amount)

Mortgage insurance requirement: Upfront VA funding fee typically 2.3% for first VA loan use. No ongoing mortgage insurance

**Subject to county limit for the program

Freddie Mac CHOICERenovation® loan FAQs

What is the Freddie Mac rehab loan called? The Freddie Mac CHOICERenovation® loan is Freddie Mac’s rehab loan option. It is similar to the Fannie Mae HomeStyle renovation loan, and it allows homebuyers to purchase and renovate a home with a single loan. Freddie Mac CHOICERenovation® borrowers can use the loan to make cosmetic, structural, and luxury upgrades to the home.

Is HomeStyle Fannie or Freddie? The Fannie Mae HomeStyle renovation loan program is administered by Fannie Mae. Freddie Mac offers a similar option, the Freddie Mac CHOICERenovation® loan.

What lenders work with Freddie Mac? Many lenders offer Freddie Mac conventional loans, as conventional loans are the most common type of mortgages. If you’re unsure whether a lender offers Freddie Mac home loans, you can call or message them directly to find out which loan options they offer. Lenders often list the loan programs they provide on their websites as well.

What is a limited 203k loan? The FHA Limited 203k loan is a mortgage that allows you to buy a home and finance roughly $31,000 in cosmetic, non-structural home improvements in the same loan. The stated maximum is $35,000, but some of the funds will need to be set aside for contingencies and fees.

There is also an FHA 203k Standard loan, which allows you to finance the home purchase plus repairs up to your preapproved amount or FHA county limit, whichever is lower. The Standard option allows for both cosmetic and structural repairs.

The bottom line

A Freddie Mac CHOICERenovation® loan gives you the flexibility to create your dream house from an existing home, all with a single, low down payment mortgage. Rather than wait years to renovate, you can start the transformation as soon as you close on the loan.

And you can lock in a fixed interest rate so that your housing costs stabilize and you have a house that’s likely to appreciate for years to come.








  • A Freddie Mac CHOICERenovation® loan lets you buy a house and renovate it with one loan
  • You can make cosmetic, structural, and luxury renovations – including installing a pool or putting in a new patio
  • First-time homebuyers can qualify for a Freddie Mac CHOICERenovation® loan with just 3% down



*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.

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