Mortgage Trends » HomePath loans save on foreclosures
Like many other homebuyers who consider buying a foreclosed home, Chad Kinney was disappointed when he learned it would be difficult to get a mortgage for the property he chose.
The Fannie Mae-owned house that he wanted to buy needed repairs and would likely not pass the property inspection required by mortgage lenders, he was told. That's when the listing agent suggested he apply for a HomePath Mortgage, which doesn't require mortgage insurance, a property inspection or appraisal and is offered exclusively to borrowers buying homes from Fannie Mae.
"That was the first time I ever heard of HomePath, so I started researching," he says. "To me, the selling point was my monthly payment is lower and I can get an additional $15,000 for renovations."
Fannie Mae started offering HomePath loans and HomePath renovation mortgages in 2009 to unload the thousands of homes the agency repossesses through foreclosure.
The little-known program has been gaining popularity in recent months, but many buyers are not aware of it and don't understand the pros and cons of HomePath financing until a broker or agent suggest it to them, says Brent Kluge of PrimeLending in Timonium, Md.
How HomePath works
Fannie Mae does not directly lend to buyers. The agency sets the guidelines that lenders need to follow if they want Fannie to buy the loans after they are originated. In the case of HomePath, Fannie allows lenders to finance properties owned by Fannie Mae with as little as 3 percent down for buyers who plan to occupy the home and 10 percent down for investors.
HomePath also offers renovation loans for buyers purchasing properties that need minor or substantial repairs. The financing can be for up to 97 percent of what the home is expected to be worth after the repairs.
Most lenders require a minimum credit score of 660 for borrowers putting only 3 percent down, says Juan Rodriguez of Baytree Lending Co. in Chicago.
Potential buyers can choose from about 80,000 homes listed for sale on the HomePath website (HomePath.com). The agency acquires thousands of properties through foreclosure each month, but they sell quickly. In the first three months of the year Fannie sold 62,814 properties, according to a Fannie Mae spokeswoman. Fannie took over 53,549 properties during that period.
Only about 50 lenders nationwide are approved to offer HomePath financing. Most are regional and local lenders.
Advantages of HomePath
One of the advantages of buying a home through Fannie Mae's HomePath is that homebuyers who plan to occupy the house don't have to compete with investors during the first 15 days the property is listed. Fannie prohibits its agents from accepting offers from investors during that period.
Unlike with most other types of mortgages, HomePath financing does not require the property to be appraised, unless the buyer is borrowing money for renovation.
"It's a huge advantage," Rodriguez says. Many deals relying on traditional or Federal Housing Administration financing get killed in the last minute because the appraisal falls short of the sales price, sometimes by small amounts, he says.