Comparing Home Renovation Loan Programs

Comparing Home Renovation Loan Programs
Explore three major home renovation loan programs: FHA 203(k), Fannie Mae HomeStyle® Renovation, and Freddie Mac CHOICERenovation®. Each offers unique features for financing property improvements.
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by Kate Matties-Deiboldt, NMLS 18487
 
Eligible Property Types
FHA 203(k)
1-4 unit primary residences, PUDs, condos, manufactured housing, HUD REOs.
Fannie Mae HomeStyle®
1-4 unit primary residences, second homes, investment properties, manufactured housing, PUDs, condos, co-ops.
Freddie Mac CHOICERenovation®
1-4 unit primary residences, second homes, investment properties, manufactured housing, PUDs, condos, co-ops, leasehold estates.
Eligible Mortgage Products
1
Fixed-rate Mortgages
All three programs offer fixed-rate mortgage options.
2
Adjustable-rate Mortgages (ARMs)
FHA 203(k), Fannie Mae HomeStyle®, and Freddie Mac CHOICERenovation® all allow ARMs.
3
Additional Freddie Mac Options
CHOICERenovation® also includes Home Possible®, HomeOne®, and super conforming mortgages.
Minimum and Maximum Renovation Costs
Maximum Loan-to-Value (LTV) Ratios
FHA 203(k)
96.5% for primary residences, up to 110% of "as-is completed" value.
Fannie Mae HomeStyle®
Up to 97% for 1-unit owner-occupied properties.
Freddie Mac CHOICERenovation®
Varies by property type, ranging from 80% to 97% for primary residences.
Maximum Combined LTV (CLTV) Ratios
1
FHA 203(k)
No maximum for government entities, 110% for private individuals and organizations.
2
Fannie Mae HomeStyle®
Varies based on Eligibility Matrix for home equity CLTV ratios.
3
Freddie Mac CHOICERenovation®
Up to 105% with eligible Affordable Seconds, 95% for Manufactured Housing.
Eligible Renovation Projects
General Rehabilitation
All programs allow various rehabilitation projects.
Accessory Dwelling Units
FHA 203(k) and Fannie Mae allow construction of attached ADUs.
Energy Efficiency
All programs support energy efficiency and property resilience improvements.
Eligible Supplemental Programs
1
FHA 203(k)
Can be combined with Section 203(h) Mortgage Insurance for Disaster Victims and Energy Efficient Mortgages.
2
Fannie Mae HomeStyle®
Compatible with HomeStyle® Energy mortgages and HomeReady Mortgage.
3
Freddie Mac CHOICERenovation®
Can be used with GreenCHOICE Mortgage®.
Contractor Requirements
Licensing
All programs require contractors to be licensed when mandated by law.
FHA-Approved Consultants
Standard 203(k) Program requires FHA-approved consultants.
Project Management
Varies by program, with different requirements for project oversight and completion.
Project Completion and Draws
1
Upfront Draws
All programs allow up to 50% of material costs for upfront draws.
2
Completion Timeframe
FHA: 6 months (extensions possible). Freddie Mac: 12 months from Note Date.
3
Final Inspection
All require final inspections, including Appraisal 1004D for Fannie Mae and Freddie Mac.
Contingency Reserves
FHA 203(k)
Up to 20% contingency reserve allowed.
Fannie Mae HomeStyle®
Up to 15% contingency reserve allowed.
Freddie Mac CHOICERenovation®
Up to 20% contingency reserve allowed.
Servicing and Securitization
FHA 203(k)
No restrictions on servicing transfer. Securitization allowed as soon as the loan is endorsed.
Fannie Mae HomeStyle®
Servicing transfer when work is completed. Approval required for loans delivered before project completion.
Freddie Mac CHOICERenovation®
Servicing transfer when work is completed. One-time Seller approval required.
Disclaimer
The information presented here is not intended to be a substitute for legal counsel. This content is intended for mortgage and real estate professionals only.
It's important to note that the details provided are not a comprehensive guide, but rather an overview of the key considerations. Professionals in the mortgage and real estate industries should always consult with their legal counsel to ensure they are fully informed and compliant with all relevant regulations and guidelines.
The information shared here is meant to serve as a starting point for understanding the various programs, requirements, and processes involved in home renovation financing. However, it's crucial that mortgage and real estate professionals thoroughly research and understand the specific details of each program before advising their clients or proceeding with any transactions.