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Sunday, April 6, 2014

First Time Buyers – I saw a sign that said Homepath Financing Available. What’s that all about?

First of all it means that you are looking at a foreclosed home that is now owned by Fannie Mae.  Fannie Mae is one of two Government Sponsored Entities (GSE’s) that buy up mortgage loans an package them into investment pools. The U.S. Senate has released the draft of a bill that would do away with Fannie Mae and Freddie Mac (the other GSE) and move the functions they have been performing to the new Federal  Mortgage Insurance Corporation. Both GSE’s are currently owned by the government as the result of having gone bankrupt during the great recession.

HomePath Financing, available only on Fannie Mae-owned properties, offers great benefits — a 5% down payment , no lender-requested appraisal and no mortgage insurance, expanded seller contributions, and more. There are HomePath Mortgages available for move-in ready properties for both owner occupants and investors. You also can use the financing of your choice from any lender, such as your local bank, credit union or other financial institution. The institution has to be a participant in the Fannie Mae program and accept the rules of the program.

Freddie Mac has a similar program called HomeSteps Financing that is only available in ten states. HomeSteps Financing is available in Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas and Virginia. For more on the Freddie Mac program, click here.
If a HomePath home is not move-in ready and needs work, maybe before it can even be occupied, the HomePath Renovation Mortgage provides both the funds to purchase and to renovate in one loan. HomePath Renovation Mortgage allows a buyer to purchase a property that requires light to moderate renovation. The one loan amount includes both the funds for the purchase and renovation — up to 35% of the as completed value, no more than $35,000. As with FHA 203(K) loans, there are requirements and rules and the projected end value must be supported by an appraisers opion.

While these programs are available for both owner-occupant buyers and investors, Fannie Mae does give the owner-occupant an advantage, since they are trying to encourage individual home ownership over investor ownership. Owner-occupant buyers are given a head start through a program called First Look, which means that for the first two weeks of the listing only buyers who are going to live in the home are allowed to bid on it (similar to the HUD program for owner-occupants).

This is a great program if you can find the right property. In addition to the lower mortgage rates that are offered, the savings from having no PMI can make a big difference. Currently Fannie Mae also has a program in place to assist with closing costs, up to 3.5% of the purchase price. That program will go away shortly, unless Fannie Mae extends it. . Click here to download a PDF file with all of the details of the HomePath program.

So, is this a great deal for you? Well, that depends. If you can find one of those move-in ready homes it could be; however most of the HomePath homes, at least in this area, are in fairly sad shape. They may have mold from broken pipes as the result of our hard winter, or they may have been stripped by the previous owners or by vandals. Most have multiple issues that will need to be addresses and most will need those repairs before you can even live in them.  That scares off a lot of mortgage companies, so your choices for a mortgage may be limited.


The other thing to consider is how you will get that work done and making sure that you have a good handle on the costs involved. A common mistake is underestimating the cost and the time and running out of both before the house is ready to occupy. Most Fannie Mae homes that qualify for the HomePath program need much more than a few weekends with a paintbrush; so don’t get in over your head just because it initially looks like a good deal. If you have the wherewithal, the tools and skills and the time to take on the projects that the home will require it is a good deal. Good luck with your HomePAth house.

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