Freddie Mae has announced a new single-close mortgage product that will allow homeowners to finance the cost of small scale renovations. The CHOICEReno eXPress will allow homebuyers to make cosmetic renovations, such as replacing windows and doors, roof repairs, minor remodeling and interior or exterior painting.
The new product is an expansion of the existing Freddie Mac CHOICERenovation mortgages. The new loans will offer homebuyers and homeowners more affordable loan terms than using credit cards or unsecured financing when making small-scale renovations.
Lenders can sell the new mortgages to Freddie Mac when the loan proceeds are used to pay for renovations of up to 10 percent of the home's as-completed value (up to 15 percent in rural regions with high needs classification) without requiring special lender pre-approval or lender recourse depending on the purchase price. A completed inspection is required to verify that the planned renovations were in fact done.
According to Danny Gardner, senior vice president of client and community engagement for Freddie Mac's Single-Family business, the streamlined loan requirements will be beneficial to lenders who want to provide a renovation option to their clients but have limited experience in renovation and construction lending.
The company has also updated its requirements for the CHOICERenovation mortgage product to make them easier for lenders to implement and to offer them to more borrowers. The changes include:
- allowing 100 percent of the cost of materials to be advanced and renovation costs to be paid directly to a home improvement store,
- the ability to use proceeds to pay off short-term financing for prior renovations of an existing home, and
- allowing a borrower to not occupy a primary residence while renovations are ongoing.
The CHOICERenovation proceeds may also be used to renovate a property that has been damaged in a natural disaster or for renovations that will help the borrower prevent damage from a future disaster.
The CHOICERenovation updates and the new CHOICEReno eXPress will be available for mortgages with settlement dates on and after November 1, 2021.