How the Freddie Mac CHOICERenovation loan works: 2024 guidelines

By: Peter Miller Updated By: Ryan Tronier Reviewed By: Paul Centopani
September 7, 2023 - 11 min read

Buy and renovate a fixer-upper with one loan

Freddie Mac’s CHOICERenovation loan (sometimes written “Choice Renovation”) mortgage 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.

Check your Freddie Mac CHOICERenovation loan eligibility. Start here

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What is the CHOICERenovation loan?

The CHOICERenovation loan is a unique financial product that has been designed to help homeowners and potential buyers navigate the often complex world of home renovations and purchases.

Unlike traditional loans, the CHOICERenovation loan combines the costs of buying a home and making necessary improvements into a single mortgage. This innovative approach simplifies the process, making it easier for borrowers to manage their finances.

One of the key aspects of the CHOICERenovation loan is its flexibility. It allows borrowers to finance renovations that cost up to 75% of the home’s value after the improvements have been made. This means that if you’re looking at a property that needs significant work, you can factor in those renovation costs when applying for your loan. This is a significant advantage over other loan options that might not take into account the true value of the property after improvements.

Competitive mortgage rates

Another important feature of the CHOICERenovation loan is its competitive interest rates. Like other mortgage products, the rates can vary based on a variety of factors, including the borrower’s credit score and the loan term. However, because the CHOICERenovation loan is guaranteed through Freddie Mac, it often comes with lower rates than other types of loans. This can make a significant difference in the overall cost of the loan, making it a more affordable option for many borrowers.

Not all mortgage lenders offer the CHOICERenovation loan, so you’ll need to ask specifically about this product. Be sure to compare mortgage rates and terms from different lenders to ensure you’re getting the best deal.

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 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.

CHOICERenovation refinance loan

The CHOICERenovation loan is also a great option for homeowners considering refinancing.

If you already own a home but want to make improvements, you can refinance your existing mortgage with a CHOICERenovation loan. This allows you to wrap your renovation costs into your new loan amount, potentially saving you money on closing costs and simplifying your finances.

CHOICERenovation loan requirements

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 mortgage 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 upfront for owner-occupiers.

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

CHOICEReno eXPress

Are you planning small-scale improvements? Think about CHOICEReno eXPress. If your property needs only aesthetic updates like changing windows or doors, the CHOICEReno eXPress loan from Freddie Mac could be a more suitable option.

Eligible renovations can amount to 10% of the property’s value after the work is done, and in some rural areas, this can go up to 15% without needing any special pre-approval from the lender.

You’ll have to complete the renovations within a six-month period, and a home inspection will be required by Freddie Mac to confirm the completion of the work.

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 of getting an offer accepted on a fixer-upper that needs TLC.

Renovation projects

Is your kitchen rundown? 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 at a minimum. With CHOICERenovation, you can refinance into a lower rate, potentially, and finance improvements with one loan.

Build an accessory dwelling unit (ADU) ‘mother-in-law’ suite

It’s hard to overlook the new demand for accessory units — additions that 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 that 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 retrofitting, 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.

CHOICERenovation loan vs. other renovation loans

The HomeStyle loan, the FHA 203(k) loan, and the CHOICERenovation loan are all made to assist homeowners in financing their home purchases and renovations with a single loan. While they share this common goal, their requirements, benefits, and specific features differ.

FeatureCHOICERenovation loanHomeStyle loanFHA 203(k) loan
Minimum down payment5%5% (3% with Home Possible)3.5%
Credit score requirementDetermined by lender (usually 620–660),620 or higher580 or higher
Debt-to-income ratioDetermined by lenderDetermined by lenderMaximum 43%
Loan consultant requiredNoNoYes
Disaster protection upgradesYesNoYes
Accessory dwelling unitsYesYesYes
Investment propertiesYesYesNo (as of 1996)
Energy efficiency improvementsYesYesYes

Please note that the specific requirements and features can vary depending on the lender and the borrower’s individual circumstances. It’s always a good idea to consult with a loan officer or financial advisor to understand which loan product is the best fit for your needs.

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: A 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

CHOICERenovation loan alternatives

While the CHOICERenovation loan offers a unique blend of features that can be highly beneficial for certain homeowners and potential buyers, it’s not the only option available.

Other alternatives, such as home equity loans, Home Equity Lines of Credit (HELOCs), and cash-out refinances, also provide ways to finance home improvements.

Home equity loan

A home equity loan allows homeowners to borrow against the equity they’ve built up in their homes. This type of loan provides a lump sum of money that can be used for any purpose, including home renovations.

Check your loan options. Start here

  • Pros: Home equity loans typically come with fixed interest rates, which means your monthly payments will remain the same throughout the life of the loan. This predictability can be a significant advantage for budgeting purposes
  • Cons: Since a home equity loan uses your home as collateral, there’s a risk of losing your home if you fail to make the payments. Also, you need to have enough equity in your home to qualify, which might not be the case for recent homeowners
  • Who should use it? Homeowners with a significant amount of equity in their homes who prefer the predictability of fixed monthly payments might find a home equity loan to be a good option

Home equity line of credit (HELOC)

A HELOC is similar to a home equity loan, but instead of receiving a lump sum, you get a line of credit that you can draw from as needed.

Verify your home equity loan eligibility. Start here

  • Pros: A HELOC offers flexibility since you only borrow what you need when you need it. This can be particularly useful for ongoing renovation projects where costs might be spread out over time
  • Cons: HELOCs typically come with variable interest rates, which can lead to fluctuating monthly payments. Like a home equity loan, your home is used as collateral, so there’s a risk of foreclosure if you can’t make your payments
  • Who should use it? Homeowners who have ongoing renovation projects and prefer the flexibility of drawing funds as needed might find a HELOC to be a suitable option

Cash-out refinance

A cash-out refinance involves refinancing your existing mortgage for more than you currently owe and taking the difference in cash. This cash can then be used to finance home improvements.

Check out your cash-out refinancing options. Start here

  • Pros: Cash-out refinances often come with lower interest rates than home equity loans, or HELOCs. Plus, you’re dealing with a single loan rather than two, which can simplify your finances
  • Cons: Refinancing can come with substantial closing costs, which can eat into the amount you receive. Also, extending the term of your loan can mean you’ll pay more in interest over the life of the loan
  • Who should use it? Homeowners who can secure a lower interest rate through refinancing and need a substantial amount for renovations might find a cash-out refinance to be a good option

In contrast to these alternatives, the CHOICERenovation loan allows you to finance both the purchase of a home and the cost of renovations in a single loan, which can simplify the process and potentially save on closing costs.

However, the best choice depends on your individual circumstances, including your financial situation, the amount you need for renovations, and your long-term plans for the home.

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 the Loan Product Advisor for an “Accept” risk classification. Manual underwriting is not permitted.

Are you eligible for a CHOICERenovation loan?

A renovation mortgage with a single closing has many advantages.

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.

Time to make a move? Let us find the right mortgage for you

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.
Ryan Tronier
Updated By: Ryan Tronier
The Mortgage Reports Editor
Ryan Tronier is a personal finance writer and editor. His work has been published on NBC, ABC, USATODAY, Yahoo Finance, MSN Money, and more. Ryan is the former managing editor of the finance website Sapling, as well as the former personal finance editor at Slickdeals.
Paul Centopani
Reviewed By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.