Freddie Mac Guidelines: Eligible Renovations for CHOICERenovation Mortgages

What CHOICERenovation Mortgages Can Finance

CHOICERenovation mortgages let you roll renovation costs into your home loan instead of taking out separate construction financing. The program works only with existing homes — you need a dwelling already on the property.

The eligible improvements cover a wide range. You can add a swimming pool, build a deck, screen in a porch, or create patio additions. Energy efficiency upgrades qualify, like new windows, insulation, or solar panels. Safety improvements count too, including storm surge barriers, earthquake retrofitting, or retaining walls for disaster protection.

Say you want to add a mother-in-law suite behind your main house. CHOICERenovation financing covers accessory dwelling units, including manufactured home ADUs. The loan can also finance repairs after disaster damage.

The program includes soft costs that other loans might not cover. You can finance architectural plans, permits, title updates, appraisals, and inspection fees. The loan can even cover up to six monthly mortgage payments while construction happens.

What You Cannot Finance

The program has clear restrictions. You cannot tear down your existing house and build new. This is renovation financing, not new construction financing.

Personal property stays off-limits, with one exception: new appliances. You can finance a refrigerator or dishwasher as part of a kitchen renovation, but you cannot buy furniture or artwork.

The distinction matters for items that blur the line. A built-in bookshelf that becomes part of the house structure qualifies. A standalone bookcase you could move does not.

Legal Compliance Requirements

All renovations must meet state and local building codes. Your contractor needs proper permits before starting work. The lender will verify permit compliance during inspections.

Properties in planned communities face additional hurdles. Homeowner associations, condo boards, and co-op boards often restrict renovations. You need written approval from your HOA before the lender will approve your loan.

Some associations prohibit pools or limit deck sizes. Others require specific materials or colors. Get HOA approval in writing before you apply for financing. A verbal okay from your neighbor on the board will not satisfy the lender.

Special Rules for Manufactured Homes

You can renovate a manufactured home with CHOICERenovation financing, but the home must still meet HUD standards after the work finishes. The lender will verify compliance through inspections.

If your property has multiple manufactured homes, you can remove ones that are not your primary residence. The appraiser will factor the removal into the property's final value calculation.

Paying Off Existing Construction Loans

CHOICERenovation loans can pay off short-term financing you used for renovations already completed. This works only on no-cash-out refinances with strict requirements.

You must be the borrower on both the old construction loan and the new CHOICERenovation loan. The lender allows some exceptions for death or divorce. You can add a related person like a spouse, but all borrowers must live in the home.

All renovation work must be finished before your new loan closes. The appraiser will inspect the completed work and include it in the home's value. Any future renovations get handled separately in the appraisal.

Required Documentation for Construction Loan Payoffs

The paperwork requirements are extensive when paying off existing construction financing. Your lender needs the original short-term loan agreement and all modification documents.

You must provide receipts and invoices for every renovation expense. Purchase contracts, plans, specifications, and lien waivers all go in the file. The lender wants proof of what you spent and verification that contractors got paid.

The file needs a clear calculation showing how much short-term financing the CHOICERenovation loan will pay off. Your closing disclosure from the original construction loan goes in the file, along with the current payoff statement.

Why These Rules Exist

Fannie Mae created these guidelines to manage risk while expanding renovation financing options. The existing dwelling requirement ensures the property has established value before improvements begin.

The legal compliance rules protect both lenders and borrowers. Unpermitted work can create title problems and reduce property value. HOA violations can trigger lawsuits or force expensive corrections.

The documentation requirements for construction loan payoffs prevent fraud. Lenders need proof that renovation money went to actual improvements, not personal expenses. The completed work requirement ensures the appraiser can verify the improvements add real value.

Common Problems and Complications

Permit issues cause the most delays. Some borrowers start work before getting proper permits, thinking they can obtain them later. Building departments may require expensive corrections or complete tear-downs for unpermitted work.

HOA approvals can take months. Some associations meet quarterly, creating long delays. Others require detailed architectural plans before approval. Start the HOA process early in your planning.

Contractor problems complicate construction loan payoffs. If your contractor disappeared or filed bankruptcy, gathering required documentation becomes difficult. Missing invoices or incomplete lien waivers can delay or kill the loan approval.

Appraisal timing creates another common issue. The appraiser must see completed work for construction loan payoffs but cannot include future renovations in that same value. Coordinate carefully with your appraiser and lender on inspection timing.

References

For the official guidelines, see 4607.6: Eligible renovations for CHOICERenovation® Mortgages in the Fannie Mae Selling Guide.