“Cash only!” These are the last words a homebuyer wants to hear after choosing a home.

First-time homebuyer Jaime has heard that twice and wants to know why.

“I am in the hunt for my first home. The process has been agonizing because the scenarios have been so strange, but a learning process. I looked at a property with my Realtor. She says she was told I would not be able to finance the property through Fannie Mae (It’s a Fannie Mae-owned home, or REO). I spoke with the listing agent and the agent says there’s no such thing — the property qualifies for financing. My agent has made the comment again on another property that Fannie/Freddie is not financing a property, meaning cash only. How can this be? What scenarios would it take for Fannie/Freddie to mandate cash only? I am confused and irritated because in my area inventory is low.”

As I read Jaime’s question, I can’t help to think of my homebuying experience two years ago.  Like Jaime, I went through the agonizing process of buying a home from Fannie Mae. Yes, it was confusing, frustrating and irritating, as Jaime describes. But I got such a great deal on my home that looking back, I think it was worth it.

I started my house hunt with a not-so-helpful real estate agent, but I quickly found a more knowledgeable one that could provide better service.  I don’t know if that’s the problem in Jamie’s case, but I find it strange that the agent is saying a Fannie Mae property isn’t eligible for a Fannie Mae mortgage.

Unless the home is missing a kitchen or has excessive damage, Fannie Mae should not only give you a mortgage to buy a home owned by them, it will give you great incentives to do so. Fannie Mae offers a little-known mortgage program on its foreclosed homes, called HomePath. Homebuyers can get a HomePath loan with as little as 3 percent down and won’t be charged mortgage insurance, which will save a significant amount of money. With a HomePath loan, the lender does not have to order an appraisal of the home, which makes the loan process quicker and cheaper. The only concern here is you have to make sure you are not overpaying for the home, since there will be no lender-ordered appraisal.

Even if you are buying a Fannie Mae-owned home that needs repairs, you can try to can get a HomePath renovation mortgage, which can provide some extra money for remodeling.

It’s important to remember that Fannie Mae is not a direct lender. You have to find a lender that offers HomePath loans. That lender will later sell your mortgage to Fannie.

Another plus for noninvestor homebuyers buying from Fannie is that they get first dibs at the home for the first 15 days after the home is listed. That means as long as you submit your offer during those 15 days and it meets Fannie’s requirements, you won’t have to worry about competing with investors, who often are cash buyers.

Also note that HomePath mortgages can be used only to purchase  homes from Fannie Mae.

Don’t confuse Fannie Mae with Freddie Mac either. Freddie Mac properties are not eligible for this special program. If the home you looked at belongs to Freddie Mac and needs repairs, it would probably be a cash-only deal. But if the home is in good shape and meets the lenders requirements, I don’t see why you couldn’t get a conventional mortgage (that would be later sold to either Fannie or Freddie).

I wrote this story last year about HomePath mortgages that goes into more detail about the program and why it’s great for homebuyers. And if you are thinking about buying a foreclosed home owned by a bank, these tips can help you get the best deal.  

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