If you are looking for a way to finance both the purchase and renovation of a fixer-upper, you might want to consider the Freddie Mac CHOICERenovation loan. This loan program allows you to combine the cost of buying a home with the cost of making repairs or improvements into one single mortgage. In this article, we will explain what the CHOICERenovation loan is, how it works, what its benefits and requirements are, and how it compares to other renovation loan options.

What is the CHOICERenovation loan?

The CHOICERenovation loan is a type of conventional loan backed by Freddie Mac, one of the two government-sponsored companies that buy and sell mortgages in the secondary market. This loan is designed to help borrowers finance the purchase and renovation of a home with one loan and one closing. The loan amount is based on the as-completed value of the property, which means the appraised value after the renovations are done.

Competitive Mortgage Rates

One of the advantages of the CHOICERenovation loan is that it offers competitive mortgage rates compared to other renovation loan programs. The interest rate on this loan is determined by the lender, but it is influenced by factors such as down payment, loan term, credit score, and loan-to-value ratio. The CHOICERenovation loan also has lower fees than some other renovation loans, such as the FHA 203(k) loan, which requires an initial mortgage insurance premium as well as a yearly mortgage insurance premium.

Is a CHOICERenovation Loan Right For You?

The CHOICERenovation loan might be a good option for you if you meet the following criteria:

• You want to buy and renovate a home with one loan and one closing
• You have a steady income and a good credit score.
• You have enough savings for a down payment and closing costs.
• You are looking for a low-cost renovation loan with a competitive interest rate.
• You want to make repairs or improvements that add value and functionality to your home.
• You want to have flexibility in choosing your contractor and managing your renovation project.

Eligible Mortgage Products

The CHOICERenovation loan can be used with various mortgage products offered by Freddie Mac, such as:

• Fixed rate mortgages with terms of 15, 20, or 30 years
• Adjustable-rate mortgages with initial fixed periods of 5, 7, or 10 years
• Superconforming mortgages for high-cost areas
• Home Possible mortgages for low- to moderate income borrowers
• Manufactured home mortgages

CHOICERenovation Loan Benefits

The CHOICERenovation loan has several benefits for borrowers, such as:

• Saving time and money by combining the purchase and renovation of a home into one loan and one closing
• Increasing the affordability and availability of homes by expanding the pool of eligible properties
• Enhancing the value and livability of homes by making repairs or improvements that suit the borrower’s needs and preferences
• Reducing the environmental impact of homes by improving their energy efficiency and resilience
• Accessing a wider range of contractors and suppliers by having the option to use the    CHOICEReno eXPress feature

How the Freddie Mac CHOICERenovation Loan Works

The process of applying for and obtaining a CHOICERenovation loan is similar to that of a regular mortgage, with some additional steps and requirements. Here is an overview of how the CHOICERenovation loan works:

• Find a lender that offers the CHOICERenovation loan and get pre-approved for a loan amount based on your income, credit, and debt.
• Find a home that meets your needs and budget, and make an offer to buy it
• Hire a qualified contractor to inspect the home and provide a detailed estimate of the renovation costs and timeline.
• Submit the contractor’s estimate and a list of the proposed repairs or improvements to the lender for approval.
• Order an appraisal of the home to determine its as-completed value.
• Close the loan and start the renovation project within 30 days of closing.
• Pay the contractor in installments as the work progresses, using a draw request form and an inspection report.
• Complete the renovation project within 12 months of closing and enjoy your new home.

CHOICERenovation Refinance Loan

The CHOICERenovation loan can also be used to refinance an existing mortgage and pay for renovations. The refinance loan amount is based on the as-completed value of the home minus the existing mortgage balance. The refinance loan can be used to pay off any type of mortgage, including FHA, VA, USDA, or conventional loans. The refinance loan can also be used to cash out some of the home equity for other purposes, such as education expenses or debt consolidation.

CHOICERenovation Loan Requirements

The CHOICERenovation loan has some general and specific conditions that borrowers must meet before applying for the loan. The general requirements are similar to those of a conventional loan, such as:

• Down Payment: The minimum down payment for the CHOICERenovation loan is 3% for a primary residence, 15% for a second home, and 20% for an investment property. The down payment can come from the borrower’s own funds, a gift, or a grant.
• Credit Score: The lowest credit score for the CHOICERenovation loan is 620 for a primary residence, 660 for a secondary home, and 680 for an investment property. The credit score can also impact the interest rate and the loan-to-value ratio of the loan.
• Debt-to-Income Ratio: The maximum debt-to-income ratio for the CHOICERenovation loan is 45% for a primary residence, 43% for a second home, and 40% for an investment property. The debt-to-income ratio is the percentage of the borrower’s monthly income that goes toward paying debts, such as mortgages, student loans, credit cards, etc.
• Property Types Eligible For CHOICERenovation: The CHOICERenovation loan can be used to buy or refinance various types of properties, such as:
  • Single-family homes
  • Condominiums
  • Townhomes
  • Manufactured homes
  • 2- to 4-unit properties
• Investment Properties: The CHOICERenovation loan can be used to buy or refinance an investment property as long as the borrower meets the higher down payment and credit score requirements. The investment property can be rented out or used as a vacation home.

Property Types Eligible for CHOICERenovation

One of the benefits of a CHOICERenovation loan is that it can be used for a variety of property types, including:

• Single-family homes
• Condominiums
• Townhouses
• Manufactured homes
• 2-4 unit properties

You can use this mortgage to buy or refinance any of these properties as long as they meet the minimum property standards set by Freddie Mac. You can also use this loan to finance investment properties, such as vacation homes or rental units. However, you will need a higher down payment and credit score to qualify for an investment property loan.

CHOICEReno eXPress

Another benefit of a CHOICERenovation loan is that it offers a streamlined option for minor renovations. This option is called CHOICEReno eXPress, and it allows you to borrow up to $50,000 for home improvements without an appraisal or a consultant.

CHOICEReno eXPress is ideal for projects that do not affect the structural integrity or safety of the home, such as:

• Updating appliances, fixtures, or flooring
• Painting, landscaping, or fencing
• Installing energy-efficient or smart home devices
• Adding accessibility or aging-in-place features

With CHOICEReno eXPress, you can save time and money by avoiding the extra fees and paperwork that come with a full renovation loan. You can also start your project sooner, as you don’t have to wait for an appraisal or a consultant to approve your plans.

What Are The Benefits of a CHOICERenovation Loan?

CHOICERenovation loan can offer you several advantages over other financing options, such as:

• Lower Interest Rate. CHOICERenovation loans typically have a lower interest rate than other types of loans, such as personal loans, credit cards, or home equity loans. This can help you save on interest and lower your installments.
• Simplified Finances. CHOICERenovation loan allows you to combine the cost of the home purchase or refinance and the renovation into one loan. This means you only have to deal with one lender, one application, one closing, and one monthly payment. This can make your finances easier to manage and budget.
• Increased Home Value. CHOICERenovation loans can help you increase the value of your home by improving its appearance, functionality, comfort, and efficiency. This can boost your equity, which can be used as a source of funds for other purposes, such as education, retirement, or emergency expenses.
• Expanded Home Choices. CHOICERenovation loans can help you expand your home choices by allowing you to buy or refinance a home that needs repairs or upgrades. This can give you access to more affordable or desirable properties that may otherwise be out of your reach. You can also customize the home to your liking and needs rather than settling for someone else’s design or style.

What are the Eligibility Criteria for CHOICERenovation Loan?

CHOICERenovation loan has some eligibility criteria that you and the property must meet in order to qualify. Here are some of the main ones:

• You must have a credit score of 620 or 680 for an investment property.
• You must have a debt-to-income ratio of 45%, or 50% with compensating factors.
• You must have a minimum down payment of 3%, or 15%, for an investment property.
• You must occupy the estate as your primary residence or lease it as an investment property.
• The property must be a single-family home, a 2-4 unit property, a condominium, a townhouse, or a manufactured home.
• The property must meet property standards and local building codes.
• The renovation cost must not exceed 75% of the as-completed value of the property, or $250,000, whichever is less.

How to apply for a CHOICERenovation loan?

If you are interested in applying for a CHOICERenovation loan, you will need to follow these steps:

• Do your research and plan your budget. You will need to do some research and plan your budget before applying for a CHOICER renovation loan. You will need to establish how much you can afford to spend on the purchase or refinance of the home and how much you can afford to spend on the renovations. You will also need to have a general idea of the type and scope of the renovations you want to do and how they will add value and functionality to your home.
• Find a lender and get pre-approved. You will need to find a lender that offers the CHOICERenovation loan and get pre-approved for a loan based on your income, credit, and debt. You will also need to provide a general idea of the type and scope of the renovations you plan to do. You can compare different financiers and their rates and terms online or ask for referrals from your real estate agent, contractor, or friends and family.
• Find a home and make an offer. You will need to find a home that meets your requirements and budget and make an offer to the seller. You will also need to include a contingency clause in the contract that allows you to back out of the deal if the home inspection reveals major issues or the appraisal comes in lower than expected. You can work with a real estate agent to help you find and negotiate the best deal for the home.
• Hire a contractor and get a renovation plan. You will need to hire an insured and licensed contractor to perform the renovations and get a comprehensive renovation plan that outlines all the construction work to be done, the materials to be used, the timeline, and the cost. You will need to submit the renovation plan to your lender for approval. You can ask for recommendations from your lender, friends, and family, real estate agent, or online reviews to find a reliable and reputable contractor.
• Close the loan and start the renovations. Once your lender approves the renovation plan and the appraisal, you will close the loan and receive the funds for the purchase or refinance of the home. The funds for the renovations will be placed in an escrow account and disbursed to the contractor as the work progresses. You will need to pay interest only on the funds that are disbursed, not on the total loan amount. You will also need to monitor the renovation process and communicate with your lender and contractor regularly.
• Complete the renovations and enjoy your home: You will need to complete the renovations within 12 months of closing the loan and comply with the local codes and permits. You will also need to provide your lender with a certificate of completion and any other required documents. Once the renovations are done, you can enjoy your improved home and start paying the principal and interest on the loan.

Conclusion

The CHOICERenovation loan is a smart way to finance your home improvement projects, as it allows you to borrow money for both the purchase and renovation of a home or refinance your existing mortgage and add the cost of repairs or upgrades.

The CHOICERenovation loan has several benefits, such as allowing you to customize your home to your preferences and needs and taking advantage of low-interest rates and flexible terms. However, the CHOICERenovation loan also has some drawbacks, such as requiring you to pay a higher interest rate and mortgage insurance, meeting stricter requirements, and following more rules.

Therefore, you should weigh the pros and cons of the CHOICERenovation loan carefully and compare it with other financing options before applying for one.

Discover the potential of your property with the CHOICERenovation Loan Program. Don’t wait, start your home transformation journey with Matthew Fishcman today!