Understanding Freddie Mac’s CHOICEHome
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Owners of manufactured homes have typically paid more in interest on their loans than traditional homeowners. Approximately 68% of manufactured housing purchase loans were considered higher-priced mortgage loans, according to a 2014 report from the Consumer Financial Protection Bureau (the most recent report available with this data). This is because many manufactured homes are financed through chattel loans, which have high interest rates.
Freddie Mac is attempting to change this higher-interest-loan structure for manufactured homes through CHOICEHome, a two-year pilot program that provides conventional financing for manufactured homes. The program is designed to help meet affordable housing needs throughout the country by encouraging lenders to provide potential homebuyers with a manufactured housing loan.
By definition, manufactured homes are built in a factory and then secured on a permanent frame on land you own or lease. Manufactured homes cost more than 50% less per square foot than traditionally built homes, where the home is constructed onsite, according to Freddie Mac.
What makes a CHOICEHome?
A CHOICEHome is required to meet certain minimum standards. In addition to meeting HUD code, CHOICEHomes have:
- Higher pitched roof lines. A higher-pitched roof allows for better drainage.
- Energy-efficient features. These may include programmable thermostats and Energy Star-qualified Low-E windows.
- A permanent foundation. The permanent foundation must have a masonry perimeter or perimeter blocking.
- Drywall throughout the home.
- A garage or carport.
These features, along with meeting HUD code, ensure that manufactured homes can stand up to severe weather conditions.
How does the financing work?
CHOICEHome financing is offered through a variety of lenders. Lenders may offer Home Possible mortgages, HomeOne mortgages or construction conversion mortgages, all of which are purchased by Freddie Mac. Depending on the lender and the program, you may be eligible for a down payment as low as 3%.
- The Home Possible program: The Freddie Mac Home Possible mortgage program offers down payments as low as 3% to low- to moderate-income borrowers. No credit score is required, and down payments can come from a variety of sources including sweat equity, family, secondary financing and employer assistance programs. It offers a variety of mortgage products, including 15- to 30-year fixed-rate mortgages.
- The HomeOne program: This is a first-time homebuyer program and it also offers a minimum down payment of 3%. There are no income limits for the program, but at least one borrower must have a usable credit score. HomeOne mortgages must be fixed-rate.
- Construction conversion loans: Construction conversion loans are mortgages that can be used to purchase both the land that a manufactured home will sit on and the manufactured home itself. These mortgages can be fixed-rate or adjustable.
If you are considering a manufactured home, ask your lender about the CHOICEHome program.
How can a CHOICEHome be appraised?
Mortgage lenders typically require a home appraisal before you can be approved for a mortgage. Appraisers often take similar homes in the area into account to do a sales comparison. The CHOICEHome program will allow manufactured homes to be appraised based on comparable site-built homes when there are no CHOICEHomes in the area, ensuring that mortgage applications can be completed quickly and accurately.
Who can benefit from a CHOICEHome?
With their modern, energy-efficient design and customization options, manufactured homes could be a great fit for any borrower looking for an affordable housing option. CHOICEHomes may be of special interest to:
- First-time homeowners: Buying your first home can be a challenge. Given Freddie Mac’s low minimum down payment requirements and the affordability of manufactured homes, CHOICEHomes may appeal to first-time homeowners who have limited savings and who don’t want a huge monthly mortgage payment.
- Borrowers with financial challenges: According to Freddie Mac, the average price for a manufactured home is just $73,400. Freddie Mac also has options for borrowers with no credit score, and a program specifically geared toward those with low incomes. The affordability of manufactured homes combined with the flexibility of Freddie Mac programs makes CHOICEHomes an especially appealing option for those with financial limitations.
- Borrowers who want to downsize. Retirees may want to downsize to make it easier to maintain their homes and to minimize mortgage payments on a fixed income.
Freddie Mac’s flexible mortgage options make CHOICEHomes a viable option for homeowners who might otherwise be priced out of the housing market.
The bottom line
CHOICEHomes are made of the same building materials as site-built homes and can be built on vacant land or in manufactured housing communities. You can customize them with walk-in closets, vaulted ceilings, fully equipped kitchens or spacious bathrooms. Some homebuyers like fixer-uppers. Other buyers prefer homes that are ready to go right from the start.
CHOICEHomes offer affordable, brand-new homes with flexible financing and low down payment options. For many homebuyers, it may be an option worth considering.