While most post-foreclosure properties (aka REOs) end up being owned by individual banks, many such properties actually end up being owned by FNMA (Fannie Mae); since Fannie is one of the major players in mortgage markets, preferred FannieMae lenders are allowed to offer a special HomePath mortgage product that makes the process of buying those Fannie-owned REOs.
HomePath mortgages are available in most of the “normal” flavors available for other conventional mortgages (e.g. 15-, 20-, and 30-yr fixed rate, and 3/1, 5/1, 7/1, and 10/1 adjustable rate); they allow up to 97% LTVs (i.e. only 3% down) for buyers intended to occupy the property as their primary residence, or up to 90% LTV for second-home or investor buyers. Among the advantages of HomePath mortgages are:
They don’t require an appraisal; the negotiated sales price is used as the property value. Since appraisals are one of the biggest unknowns in the underwriting of most modern purchase loans and the piece of the process whose timeline is least predictable, not having one makes the mortgage financing process both more certain and faster.
They have lower upfront costs. As noted above, the buyer does not have to pay for an appraisal, and most HomePath lenders also have lower overall fees on HomePath loans versus conventional mortgages.
They do not require mortgage insurance, which usually lowers the effective rate of HomePath loans. HomePath loans do have slightly higher base rates than conventional mortgages, but for LTVs up to 95%, the effective rates when looking at total monthly payment as compared to FHA loans or conventional loans with MI are usually much lower to HomePath.
They do not require mortgage insurance. which smooths the underwriting process. Conventional loans that require mortgage insurance usually must go through two rounds of underwriting–once by the lender, and again by the mortgage insurer; HomePath mortgages can skip that second round of underwriting, which can often be more stringent than regular mortgage underwriting.
They allow LTVs up to 97%, which is slightly higher than FHA. Due to recent changes, FHA loans normally have a maximum LTV of 96.5%; thus, while FHA often has a better rate for borrowers with LTVs of 95% or higher, for borrowers for whom that extra 0.5% down payment to bring the LTV from 97% down to 96.5% would be a deal breaker, HomePath can often save a purchase that would otherwise fall apart.
They have slightly looser underwriting guidelines for condo developments. Issues with budgets, delinquent association fees, and/or high investor ratios at condo developments are one of the biggest reasons that purchase loans in the DC area don’t get approved these days, and HomePath’s condo guidelines are slightly less stringent than those for other conventional mortgages.
For all of these reasons, HomePath mortgages can be a great tool for borrowers interested in FNMA-owned REOs. How can you tell if a property is eligible for HomePath financing? Most agents listing FNMA-owned REOs will advertise that they are HomePath-eligible, but you can also always double-check (or search for FNMA-owned REOs in your area) at Fannie Mae’s HomePath.com website.
Once you’ve found a HomePath-eligible property, feel free to contact us about getting HomePath financing; our wholesale lending sources are among the strongest in the country, and we are thus on the select list of mortgage brokers who can provide HomePath mortgages.
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