Freddie Mac Single-Family Seller/Servicer Guide Section 4606.3 — Mortgage requirements

Freddie Mac Single-Family Seller/Servicer Guide Section 4606.3 — Mortgage requirements

4606.3: Mortgage requirements (05/06/26) This section contains requirements related to: ■ Mortgages used to finance eligible improvements ■ Mortgages used to pay an Existing Debt (a) Mortgages used to finance eligible improvements When the Mortgage proceeds are used to finance eligible improvements completed after the Note Date: 1. Use of proceeds: The maximum amount of the proceeds that may be used for the purchase, installation, repair or upgrade of eligible improvements is limited to 15% of the “as completed” appraised value of the Mortgaged Premises Freddie Mac Single-Family Seller/Servicer Guide Chapter 4606 As of 05/06/26 Page 4606-5 2. Mortgage file documentation: The Seller/Servicer must obtain and retain in the Mortgage file copies of all invoices and/or receipts, as applicable, related to the cost of the eligible improvements 3. Completion escrow account: On the Note Date, funds sufficient to cover the cost of the eligible improvements must be deposited into a completion escrow account. The Seller and the Borrower must execute a written escrow agreement detailing how the funds will be managed and disbursed. A copy of the escrow agreement must be retained in the Mortgage file. A contingency reserve is not required. 4. Completion escrow account disbursements: Funds in the completion escrow account may be used to reimburse the Borrower for the cost of materials purchased to complete the eligible improvements. The Seller/Servicer may not reimburse the Borrower for any self-performed labor. After all eligible disbursements have been made, any remaining funds must be applied: ■ If the Mortgage is delinquent, in accordance with the application of payment requirements in the Note and Security Instrument ■ If the Mortgage is not delinquent, to reduce the UPB 5. Appraisal: The Seller/Servicer must obtain an interior and exterior inspection appraisal with an “as completed” appraised value of the Mortgaged Premises, subject to all eligible improvements being completed. See Section 5601.4 for additional appraisal requirements. 6. Completion report: After completion of all eligible improvements, the Seller/Servicer must have the appraiser: ■ Inspect the Mortgaged Premises to verify the eligible improvements have been completed, and ■ Provide the Seller/Servicer with a completion report that includes photographs of the completed improvements. The Seller/Servicer must retain the completion report in the Mortgage file. 7. Completion deadline: All eligible improvements must be completed no more than 180 days after the Note Date. If the eligible improvements are not completed by the required completion date, the Seller/Servicer must notify Freddie Mac quality control pursuant to the reporting requirements in Section 3402.3(b). 8. Energy report: An energy report meeting the energy report requirements in Section 4606.4 may be required Freddie Mac Single-Family Seller/Servicer Guide Chapter 4606 As of 05/06/26 Page 4606-6 (b) Mortgages used to pay an Existing Debt When the Mortgage proceeds are used to pay an Existing Debt: 1. Use of proceeds: The maximum payment towards an Existing Debt is limited to 15% of the appraised value of the Mortgaged Premises 2. Remaining Existing Debt: Any remaining balance of the Existing Debt must be included in the calculation of the monthly debt payment-to-income ratio. If the remaining balance is reamortized, the Seller/Servicer must obtain and retain in the Mortgage file sufficient documentation evidencing the new payment, including a copy of the new promissory note, if applicable. 3. Settlement/Closing Disclosure Statement requirements: The Settlement/Closing Disclosure Statement must reflect that the proceeds were paid directly to the holder of the Existing Debt. The total amount of proceeds disbursed to the Borrower at closing must not exceed the maximum amount allowed pursuant to the “no cash-out” refinance Mortgage requirements in Section 4301.4. 4. Mortgage file documentation: The Mortgage file must include documentation (e.g., invoices, receipts) of the eligible improvements completed before the Note Date and their costs 5. Appraisal: An interior and exterior inspection appraisal is required. The appraisal must reflect all eligible improvements that were made. See Section 5601.4 for additional appraisal requirements. Note: See Sections 4301.4 and 4301.8 for payoff of PACE obligation requirements.

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