Handing over house keys
mortgage
HomePath loans save on foreclosures

The property does not have to go through an inspection. Buyers should always have an independent inspection prior to purchasing a home regardless of what lenders require so they are aware of the property's condition. But knowing that the lender does not have to evaluate and approve the inspection results is one less concern for the borrower, Rodriguez says.

"Typically, we are concerned about credit, capacity (to pay), and collateral," Rodriguez says. "HomePath eliminates the collateral element. Fannie already knows the value and the condition of the property they are selling."

One of the biggest advantages of a HomePath mortgage is that it doesn't require mortgage insurance, regardless of the down payment amount. With conventional loans, borrowers are required to pay mortgage insurance when they put less than 20 percent down. All FHA loans require borrowers pay for mortgage insurance.

To give you an idea of the savings, a borrower who is buying a $200,000 home with a 5 percent down payment spends about $150 a month on mortgage insurance with a conventional loan.

HomePath has slightly higher rates

But as Rodriguez points out, "nothing comes free."

HomePath mortgages have slightly higher interest rates. Generally, HomePath rates are about a quarter to half of a percentage point higher than the rates on the conventional loans. However, the cost is offset by the mortgage insurance savings, Rodriguez says.

Some buyers can choose to reduce the interest rate by paying points. That adds to the upfront costs, but Fannie Mae often offers closing cost incentives of up to 3.5 percent of the purchase price.

"In the end, the interest rate is higher but the mortgage payment is lower," Rodriguez says.

That was the case with Kinney. He is buying a home from Fannie Mae in Hampstead, Md., for $165,000 and borrowing about $180,000 through the HomePath renovation mortgage. Kinney says that, based on estimates he was given, his monthly mortgage payments are going to be about $50 less with HomePath than with the FHA loan he had considered before. That includes $15,000 to make the necessary repairs in the house.

"By and large, HomePath is the best loan for a homebuyer to buy and fix up a foreclosure asset today," Kluge says.

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