Freddie Mac unveiled a new financing option this week that will allow consumers to purchase a home and finance renovations all with one loan.
The CHOICERenovation mortgage is meant to address the “need for more efficient ways to finance home improvements to solve for today’s aging housing stock,” according to the agency. So, buyers who use the program will get to borrow the amount needed to actually purchase the property, plus the cash to complete renovations.
Homeowners can use the program to fund remodeling projects that cost up to 75 percent of a property’s appraised value.
Freddie Mac believes this approach should save consumers both time and money. For example, rather than taking out a mortgage and then a separate home equity loan — a strategy that will come with two sets of closing costs and fees — homeowners can now just pay a single time to borrow the money they need.
Danny Gardner
“The CHOICERenovation solution gives borrowers the opportunity to make improvements, renovations and upgrades to a home using a purchase or no cash-out refinance loan that will be eligible for sale to Freddie Mac,” agency senior vice-president Danny Gardner further explained in a statement. “This provides the borrower with a convenient cost saving option for financing renovations.”
Gardner also indicated the program could be well suited to Millennials and retirees — both groups that might be interested in more affordable housing such as fixer uppers.
CHOICERenovation mortgages can come with fixed or adjustable interest rates and can be used for primary residence single family homes, multifamily buildings with up to four units that are also the owner’s primary residence, secondary homes, and single unit investment properties.
Renovations on properties purchased with CHOICERenovation mortgages must be completed within one year.
Freddie Mac also noted Wednesday that the program can be used to repair a home that has been damaged in a natural disaster, or to make a property more resilient to future catastrophes.
In many ways, the program represents the convergence of several major trends currently shaping the real estate industry. The emphasis on disaster resilience is presumably a nod to climate change, which fuels everything from wildfires to flooding to rising sea levels — all of which damage numerous homes each year.
Additionally, the program is explicitly a response to increasing numbers of Millennial homebuyers, many of whom are facing soaring prices amid a historic slump in home construction. Though Freddie Mac can’t change the various zoning regulations that contribute to the problem, the agency does note in a fact sheet that the new program should appeal to “multigenerational families in need of living space customization.”
And as it so happens, multigenerational households are currently on the rise.
Finally, theCHOICERenovation mortgage program is also simply a response to the explosion of interest in remodeling generally. That interest has coincided with — and is arguably fueled by — a spate of HGTV shows on home renovations.
But either way, the remodeling industry is huge.
“The renovation market has grown by more than 50 percent since the Great Recession ended in 2009,” Freddie Mac said in its statement Wednesday. “The U.S. market for home improvement and repairs is more than $400 billion annually, according to the Harvard Joint Center for Housing Studies. Nearly 80 percent of the nation’s 137 million homes are at least 20 years old and 40 percent are at least 50 years old.”
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