Fannie Mae HomePath Mortgage: Is It The Right Thing For You?

Fannie Mae HomePath is among the most popular programs for homebuyers.

Why?

The HomePath program was actually officially closed in October 2014 but Fannie Mae still operates its website.  The original program reduced the cost of purchasing a foreclosed property for personal use or to earn a profit later.  As a house buyer or investor, it will be good to know everything you can about the HomePath Mortgage program.  The knowledge will give you a good amount of insight on how the government-sponsored entity (GSE) disposes foreclosed real estate.

What is a Fannie Mae Homepath Property?

A Fannie Mae HomePath property is a property that purchasers originally bought under the HomePath loan program.  Under this program, Fannie Mae sold the foreclosed properties owned by their institution.  Investors and buyers availed of several advantages during the original program.  Among them was the waiver of the private mortgage insurance (PMI) requirement.  This saved the buyers about 1.5% on the annual payout on the property.

162,000 Houses, 50 States

Previously, Fannie Mae had never directly sold houses to consumers.  However, the US housing implosion left the company with 162,000 houses to sell.  Fannie Mae is not a property manager but it had to make the foreclosed properties more marketable.  So, the HomePath program maintains and in some cases, upgrades the properties to make them attractive to buyers. They work with a network of contractors and real estate agents around the country to offer these properties to buyers (See how to find a good real estate lender) . Their website, www.homepath.com, offers an online listing of properties for sale in each state.

Investors can purchase these properties by paying a low down payment.  This scheme allowed many low-income buyers the opportunity to buy their own homes without needing a large cash outlay.  There are properties for sale on all 50 states.  This attracted buyers of all ages and experience levels to come in through the HomePath brand.

Should You Buy a HomePath Property?

Fannie Mae does almost everything to help homeowners keep their properties and avoid foreclosure.  They work closely with financing and mortgage companies, loan counselors and other industry partners.  However, it is virtually unavoidable.  When a foreclosure takes place, Fannie Mae moves to sell the property to new owners the soonest time possible. By disposing of the property in a short time, it minimizes the impact of the loan default to the community.  At this point, the HomePath program comes in.

Fannie Mae lists all their properties on Homepath.com, with complete descriptions and recent photos.  The site also allows visitors to filter their choices according to simple parameters (like price range and number of rooms).  This makes it easier for them to find matching properties.

Relevant For Low Credit Buyers

Buyers can choose from a wide range of homes across the United States.  They have single-family homes, condominiums, and townhouses.  A lot of them are ready for occupancy – buyers can move-in anytime.  Others might need some works, from light repairs to extensive renovations.

Many people went to the HomePath market to find houses to resell quickly.  A lot of the properties that Fannie Mae disposed were turnkey houses.  These are fully renovated houses and apartments that buyers can rent out immediately.  Usually, they have clean titles and not encumbered.

Because of the PMI waiver options, buyers with bad credit took advantage of the program.  The same thing happened with low-income buyers who could afford the low down payment scheme. They were able to start their journey as homeowners.  Fannie Mae also attracted buyers who are recovering from financial disasters such as bankruptcy.

Fannie Mae HomePath Mortgage: Is It The Right Thing For You?

The Different Mortgage Options

Fannie Mae lenders make available flexible financing packages for Fannie Mae properties or HomePath properties.  These are:

HomeReady Mortgage

If you’re a house buyer, finding the house of your dreams is the easy part.  The hard part is finding the right financing package for you.  Fannie Mae’s HomeReady®Mortgage addresses the needs of multigenerational buyers.  Parents, adult children, and others plus those sharing a home or low-income households can benefit from the scheme.

HomeReady®Mortgage provides accessible financing and promotes sustainable home ownership.  The key features of the mortgage are:

  • Low Down Payment and Flexible Sources of Funds. Buyers can make a down payment of as low as 3%. There is also no requirement for a minimum contribution from the buyer on a one-unit property.
  • Conventional Home Financing with Private Mortgage Insurance (PMI). Unlike many government-insured loans, the borrower may cancel the insurance when the equity reaches 20%.
  • Homeownership education. Buyers receive instructions on getting ready to buy a home and be better prepared to be a responsible homeowner.  The framework provides the easy-to-use online course for buyers.
  • Pioneering underwriting flexibilities. The company can make income-earning options to help the family such as rentals for a unit or boarders.

3% Down Payment Mortgage For First-Time Buyers

Many first time buyers are in the life stage when extra money is hard to come by.  The regular expenses – rent, utilities, car amortization, student loans, etc. – often eat up the monthly income.  Sometimes, the credit card bills and unplanned expenses may even deplete money already saved in the bank.

In light of all these expenses, saving money to buy a house is a great struggle for many families. However, there are financing schemes that can help buyers overcome these difficulties.  Today’s buyers can find offers that just require down payments below 20% of the house’s selling price.  In many cases, companies have reduced the down payment to just 3%.

There are even buyer assistance programs that can help cover the down payment and even the closing costs.  Buyers can pool the funds from these programs with the monetary gifts from friends and family.  This way, they can reduce the out-of-pocket costs associated with buying their own home.

First-time homebuyers who can’t afford a large down payment should not lose heart.  If they can qualify for a home loan, they may be eligible for a 3% down payment mortgage.  This option is suitable for buyers who are good at managing their credit and can meet set requirements.

Consult Your Lender

It’s best to consult the mortgage lender to get the specifics, to assess your financial condition and to check eligibility.  Before going to a lender, remember the basic requirements.

  1. At least one of the borrowers must be a first-time homebuyer. A first-time homebuyer is someone who has not owned any residential property in the last three years.  If you’re co-borrowing with others, one of you must not have owned any residential property in the last three years.
  2. The house you are planning to buy must be a one-unit property. It could be a townhouse, a condo unit, co-op or a planned unit development (PUD). It cannot be a manufactured home.
  3. The borrower plans to use the house as his residential unit.
  4. The borrower will agree to a fixed rate. Adjustable-rate mortgages (ARMs) do not qualify for the 3% low down payment mortgage.

HFA Preferred Mortgage

The good news for first-time and repeat homebuyers is that affordable options keep coming up for them. Schemes are sprouting up to meet their diverse financing needs.  In fact, there seems to be a prevalence of low down payment packages today.  The early homebuyers did not have anything like this during their time. Today, homebuyers have so many low down payment options to consider.  The HFA Preferred TM Mortgage ranks among them.

How does it work?

It is essentially a traditional loan available to first-time or seasoned buyers coming from low to moderate-income bracket.  The program has a special condition before considering participants.Buyers must work directly with their local housing finance agency (HFA) or an accredited approved lender.

The HFA or approved lender takes care of guiding qualified buyers throughout the loan underwriting process.  They will do this until the buyer completes the purchase of his home.  Some buyers may even qualify to receive down payment assistance through the HFA.  This is just one of the benefits of working with an agency that aims to make housing affordable to people.

HFA Benefits

An HFA mortgage has many benefits. Buyers may be able to avail of the following:

  • Down payment as low as 3%.
  • Down payment assistance through many HFA’s
  • Waived first-time homebuyer restriction. A buyer may still be eligible even if he has purchased homes in the past.
  • Low monthly mortgage insurance charges. They are usually lower than government-issued mortgages.
  • Cancellable mortgage insurance. The buyer can cancel the insurance once the equity climbs up to 20%, which lowers the monthly cost later.  Government-issued mortgages do not have this clause.

Significantly, when a buyer works with an HFA, he can get other services.  The local HFA can determine if the buyer is eligible for other benefits.  He could get down payment assistance or funds for closing costs.  Any prospective buyer can just ask for additional help or information at their local HFA for the best options.

HomeStyle Energy Mortgage

Homebuyers should be energy-conscious to save on cost and help the environment.  So, whether it’s buying a new home or improving an existing one, they should consider energy-saving enhancements.  It could be better insulation, water-efficient toilets, power-saving HVAC or just simply fixing leaky windows and doors.

With the cost of utilities continuing to rise, energy-saving enhancements can save a fortune in the long run. This is why many buyers are looking for ways to get these enhancements.  Of course, they do not want to drain their life savings or pay high loan interest rates. HomeStyle ®Energy makes it possible.  It provides a way to finance the enhancements by combining the costs with the buyer’s mortgage.

The program allows as much as 15% of the “as completed” value for energy-improving enhancements.  The “as completed” value means the appraised value of the home once the improvements are completed.

For example, if a buyer has a home valued at $150,000, he may receive up to $22,500 from the mortgage transaction.  He can use this for items such as:

  • Installing energy-saving windows and doors
  • Add weather stripping to improve insulation
  • Replacement or resealing of air ducts
  • Replacing the air conditioning
  • Exchanging the hot water heater for a more efficient one

HomeStyle Renovation Mortgage

This loan is for those who want to buy a home and make improvements on it at the same time. With a HomeStyle Renovation loan, a borrower just needs one loan.  It will allow him to renovate his house to fit his family’s need or suit his personal style.

When a buyer buys or refinances a home, he can apply for a HomeStyle Renovation loan to finance the improvements. The loan amount goes as high as 50% of the property’s “as completed” value.

This type of financing provides a more cost-effective means to renovate a home. It lumps the cost of the home and the renovation into a single loan. On top of that, it also addresses some other challenges that come with buying a home.

  • Buyers can avail of low down payment options. Down payments can be for as low as 5%.
  • Buyers can save money. They can do this by avoiding the closing costs off a second mortgage or by paying a lower interest rate. The interest rate is lower than those of a home equity line of credit.
  • Buyers can use as down payment funds from various sources. Buyers get the flexibility for coming up with the total down payment money. They could come from down payment assistance programs or financial gifts from family members.

There is one more thing to remember:

Any improvement that the buyer makes on the property technically increases its value.  Therefore, it has the potential to create equity on the home immediately.

Advantages And Disadvantages Of A HomePath Property

Advantages

Here are some of the advantages:

  1. HomePath properties prioritize buyer-resident over the investor. The owner-occupant has 20 days to act before investors can come in.  This protects the little guy who’s often the last to know that a good property is up for sale.  In many cases, the moneyed investors guzzle up all the great buys and leave the scraps for the buyer-residents.
  2. Fannie Mae will pay 3% of the closing costs for first-time homebuyers who complete their online training class. This incentive can be as high as $5,000 and is really a great deal.  The six-hour class explains the basics of acquiring, owning and maintaining a home.
  3. Buyers can see all the listed properties at www.homepath.com and must make all offers online. The entire system affords transparency and fairness to interested buyers.
  4. Buyers do not have to put up a Private Mortgage Insurance (PMI) even if they put in less that 20% down payment.
  5. If the buyer is in the market for a condominium, he doesn’t have to worry about FHA’s 50% occupancy restriction. It also relaxes the condition for the minimum 15% delinquency rate for HOA fees among condominium owners.

Disadvantages

Here are some of the disadvantages:

  1. Buyers would probably pay a higher interest than if they had taken a conventional or FHA loan. In fact, the FHA 203K loan can be more flexible and requires only 3.5% down payment for renovation.
  2. Buyers would have to pay more for the closing costs if they only pay 3% down. However, they can lower it if they can put up 5% down payment or if their FICO score is excellent.
  3. Buyers should obtain their own due diligence check on the units they are buying. Regulations do not really require the company to make a thorough inspection of the properties for the buyers.
  4. Buyers are buying the homes on an “as is” condition. Since there is no inspection, the buyer has to determine if the building code compliance and safety issues are acceptable. They can bring in their own inspectors if they want a level of assurance.  However, they should not expect any discount or price adjustment to cover necessary repairs.  Fannie Mae does not guarantee the property or appliances. The buyers assume the responsibility for any major repairs should they decide to buy the properties.

The Fannie Mae HomePath program is a good program for potential homeowners and investors.  It offers a variety of helpful resources for them to make intelligent decisions.

Getting a listing of the property is quick and simple via the Fannie Mae HomePath property website.  Buyers and investors can browse to see if it’s worth taking the advantage of a ‘first look’ for buying foreclosed properties.

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Baruch Silvermann

Investment research writer, business journalism, and financial analyst. Covers the vast spectrum of the financial topics in investments, real estate, equities, fixed income and personal finance. Twitter: https://twitter.com/BSilvermann

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