How the Freddie Mac CHOICERenovation loan works: 2023 guidelines

October 29, 2021 - 8 min read

What is the Freddie Mac CHOICERenovation loan?

The CHOICERenovation (sometimes written “Choice Renovation”) mortgage from Freddie Mac gives borrowers the option to buy and fix up homes without the need for two separate loans.

It also allows current homeowners to refinance, wrapping renovation costs into the new loan amount.

The CHOICERenovation loan can save thousands of dollars in excess closing expenses because you finance your home loan and repairs with a single mortgage.

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Is a CHOICERenovation loan right for you?

Many borrowers would like to buy and fix up a new home, but traditionally it’s taken two loans – and two closings – to finance such deals.

There’s one closing for acquisition financing. Then, later, there’s a second closing for such options as a cash-out refinance, a second loan, a home equity loan, or a home equity line-of-credit (HELOC) to pay for renovations.

In all situations, such loans can require a full-blown closing, and that can mean big costs for such things as legal fees, title insurance, and taxes.

Freddie Mac’s CHOICERenovation loan program eliminates the fuss and expense of closing on two loans.

Instead, it allows borrowers to buy a home and make needed renovations all with a single mortgage loan.

Eligible mortgage products

  • Fixed rate and adjustable rate mortgages
  • Freddie Mac Home Possible mortgages
  • Freddie Mac HomeOne mortgages
  • Super conforming mortgages

Freddie Mac’s CHOICERenovation loan has some similarities with the FHA 203 (k) loan and Fannie Mae’s HomeStyle Renovation loan.

All three loan products offer purchase-and-renovation financing with just a single loan and closing. These programs, however, have differences that are explored later in the article.

CHOICERenovation loan benefits

  • Finance a home purchase or home renovation with a single fixed-rate or adjustable-rate loan
  • Provide resilience upgrades to protect an existing home from natural disasters
  • Build accessory dwelling units, such as mother-in-law apartments
  • Combines with Freddie Mac’s Home Possible or HomeOne to purchase a home with just 3% down payment
  • Primary homes, second homes and investment properties are all eligible

How the Freddie Mac CHOICERenovation loan works

A CHOICERenovation loan can be used to purchase a new home, or to fund renovation projects on an existing home.

To start, you’ll apply for CHOICERenovation with a lender of your choice. The lender will need to review your finances as well as your proposed renovation plans and approve you for the mortgage.

After you’re approved, the ChoiceRenovation program requires the establishment of an escrow account.

The escrow account includes renovation funds, contingency funds and up to six months of mortgage principal, interest, taxes, and insurance (PITI). All funds are held until closing, and your builder will be paid in ‘draws’ as the work is completed.

The lender can disburse up to 50% of the cost of materials after closing.

For additional information and specifics, speak with lenders. Ask about rates and terms, how draws are handled, and which program best fits your needs and preferences.

Requirements to get CHOICERenovation loan

While a CHOICERenovation loan is available to all qualified buyers, Freddie Mac identifies several types of borrowers who may benefit most from this loan product.

  • First-time home buyers purchasing fixer-upper homes
  • Existing homeowners and multigenerational households in need of home improvements and accessibility upgrades
  • Borrowers who want to save money by financing a home purchase and home renovation with single loan
  • Homeowners looking for financing for home improvements and repairs to an existing property or a new home

Down payment

With a CHOICERenovation mortgage, the minimum down payment can vary with the number of units and their usage. As examples:

  • 1-unit primary residence: 5% down* / 95% loan-to-value ratio (LTV).
  • 2-unit primary residence: 15% down (85% LTV).
  • 3-4 unit primary residence: 20% down (80% LTV)
  • 1-unit second home: 10% down (90% LTV).
  • 1-unit investment property: 15% down with 7/1 or 10/1 ARM (85% LTV)
  • Manufactured home: 5% down (95% LTV)

*Down payment as low as 3% if combined with Freddie Mac’s Home Possible mortgage for single-family homes.

Credit score

The CHOICERenovation loan does not have a minimum credit score requirement. Borrowers will need to meet the conventional mortgage requirements of their lender. Most lenders require a credit score of 620-660 to qualify for a conventional mortgage.

Debt-to-income ratio

Similar to a borrower’s credit score, Freddie Mac does not have specific debt-to-income (DTI) requirements for the CHOICERenovation loan.

Property types eligible for CHOICERenovation

The CHOICERenovation program is open to a wide variety of properties.

  • 1-4 unit primary residences
  • Manufactured homes
  • 1-unit second homes
  • 1-unit investment property
  • Properties located in planned unit developments (PUDs), condos, cooperatives (if permitted in the Seller’s Purchase Documents), and leasehold estates.

Investment properties

The government has long tried to understand real estate investors. HUD, the overseer of the FHA 203 (k) rehab loan program, has wanted to “consult with the industry … to explore legislative and policy reforms that will … provide the neighborhood rehabilitation benefits of the investor program without the abuse and risk to the insurance fund.”

These words were written in 1996. Real estate investors have been banned from the FHA 203 (k) program ever since.

Fannie Mae and Freddie Mac feel differently. The HomeStyle and ChoiceRenovation programs provide investor financing for single-unit properties with a minimum of 15% down. This is higher than the 3% down required for upfront for owner-occupiers.

But it’s still a very low down payment considering it’s a rental property construction loan.

How to use a CHOICERenovation loan

Renovation loans are required to improve a property unless you have cash on hand. Buyers and owners alike benefit from these loans.

Home purchases

As the housing market continues its never-ending ascent, well-maintained homes are harder to find.

The CHOICERenovation loan allows you to consider run-down homes that would not meet traditional financing requirements.

These homes are less expensive and often come with less competition. As a first-time home buyer, you may have a great chance at getting an offer accepted on a fixer upper that needs TLC.

Renovation projects

Is your kitchen run down? Does the living room need new carpet? Are your bathrooms in need of remodeling?

Those repairs and improvements can run into the mid-five figures, minimum. With CHOICERenovation, you can refinance into a lower rate, potentially, and finance improvements with one loan.

Build an accessory dwelling units (ADU) “mother-in-law” suite

It’s hard to overlook the new demand for accessory units — additions which can be used for guests, in-laws, and short-term rentals.

With the popularity of short-term vacation rentals on platforms such as Airbnb, many people want to renovate and take advantage of this growing income stream — renovations which need to be financed.

“Resilience items” aka disaster protection upgrades

The CHOICERenovation program allows borrowers to finance so-called “resilience items.”

Resilience items are home improvements such as surge barriers, foundation retro-fitting, and retaining walls.

In other words, this is a way to get funding for disaster protection upgrades. It’s a recognition that fires, floods, hurricanes, earthquakes, and other natural disasters are common and increasingly expensive.

Freddie Mac CHOICERenovation loan vs. Fannie Mae HomeStyle loan

Fannie Mae’s HomeStyle Renovation loan and Freddie Mac’s CHOICERenovation program are pretty much alike.

Borrowers can finance a one-unit primary residence with as little as 3% down (when combined with Home Possible), the same as with Fannie Mae’s HomeStyle financing.

Additionally, credit score requirements for HomeStyle and CHOICERenovation vary by lender.

However, one important difference between these two loans is that the CHOICERenovation mortgage program allows you to finance resilience items — like disaster proofing your home — whereas HomeStyle does not.

Freddie Mac CHOICERenovation loan vs FHA 203 (k)

The FHA 203 (k) mortgage is a popular loan program that also allows borrowers to purchase a fixer upper and remodel it with a single mortgage. But there are a few differences between the loans.

  • Credit scores: FHA allows credit scores of 580 or higher. CHOICERenovation does not have a minimum credit score. Instead, credit rankings are determined by the lender
  • Down payment: Minimum down payment of 3.5% for FHA 203 (k) rehab financing. Freddie requires a 3% minimum down payment when combined with a Home Possible loan — otherwise, the minimum is 5%
  • Consultants: The FHA 203 (k) program requires borrowers to obtain the services of a 203k consultant. The consultant guides the homeowner through the construction process. Freddie, on the other hand, does not have this requirement
  • Debt-to-income ratio: FHA has a maximum DTI of 43%, whereas DTI is determined by the individual lender with a CHOICERenovation loan

Freddie Mac CHOICERenovation loan FAQ

Are energy efficiency improvements eligible?

Yes. Freddie Mac considers energy efficient improvements to fall under its category of permissible property improvements.

Does CHOICERenovation require a consultant?

No. Freddie Mac does not require borrowers to hire a construction consultant when using a CHOICERenovation loan.

What are the maximum renovation costs?

The maximum allowable renovation costs on a refinance are up to 75% of the appraised value of the home after improvements and repairs have been made. However, for a home purchase, renovation costs cannot exceed 75% of the lesser of the sum of the purchase price and renovation costs, or the home’s value after renovation.

What underwriting paths are allowed?

CHOICERenovation mortgages must be submitted to Loan Product Advisor for an “Accept” risk classification. Manual underwriting is not permitted.

How do I apply for a CHOICERenovation loan?

The benefits of a renovation mortgage with one closing are many.

FHA 203 (k) and HomeStyle are two popular mortgage products, and now Freddie Mac joins those loans by offering a new choice that allows accessory dwelling units and other bonuses.

Get your CHOICERenovation eligibility and rate check and start your journey to a renovated home.

Peter Miller
Authored By: Peter Miller

The Mortgage Reports contributor

Peter G. Miller, author of The Common Sense Mortgage, is a real estate writer syndicated in more than ​50​ newspapers nationwide. Peter has been featured on Oprah, the Today Show, Money Magazine, CNN and more.