Mortgages may be on the pivot again. They have made it through a period of tight lending conditions all the way to our current phase where lenders have had to come up with dozens of iterations of low downpayment programs. While the low downpayment trend hasn’t ebbed completely, it may be shifting towards a lending landscape that provides even more cash to buyers—particularly first-time buyers and those who want to age in place.
Freddie Mac announced last week a new CHOICERenovation product that joins the other home renovation mortgage options out there which encourage buyers to purchase old housing stock. The HomeStyle loan by Fannie Mae and the FHA(203)k program already existed, but as a sign of the increasing trend toward adapting and making use of existing homes, Fannie Mae already announced last year they lowered the downpayment requirements for qualified buyers from 5% down to 3%. All three programs offer one loan for both the home and the renovation with only one set of closing costs.
“There’s a lot of old housing stock out there and it’s getting older,” said Chad Wandler, spokesperson for Freddie Mac. “By our analysis new construction is down about 2.5 million homes from where we think we should be. 1.6 million is being held off by seniors and boomers who are aging in place. If you think about first-time buyers. They want to buy something but the kitchen hasn’t been renovated or the bathroom hasn’t been renovated. Now they can do that.”
The program is for both purchase and refinance loans and doesn’t require homeowners to live in the home, unlike the FHA program. Buyers can use up to 75% of the appraised value for the renovations, but the renovations must be completed within a year and can be used for major projects with the exception of anything that would qualify as a teardown. As low as 3% down is possible if the applicant meets all the credit and income requirements.
“You have all the people who want to age in place or multi-generations who want to live together. Maybe you want to add another bedroom or an accessory dwelling unit. You can do all that,” said Wandler.
This loan also allows buyers to pay for the prevention or repairs from damage due to natural disasters, such as barrier walls or hurricane-proof doors. “That’s really unique to CHOICERenovation,” said Wandler.
The lack of affordable inventory in nearly every major market in the U.S. has been the lament of industry analysts for years. With the third major player in the mortgage market providing another option to make existing housing stock more amenable to people’s needs we just might be on our way to a more balanced housing market.