By Cherise Fantus
Foreclosures can be a great deal for home buyers. Prices on these bank-owned homes are generally rock-bottom, and they are already vacant, which can mean a faster move-in. However, many buyers run into hurdles when it comes to getting a mortgage to buy a foreclosed home. Passing the lender-required inspection becomes more difficult and repair costs only add to the stress. However, HomePath mortgages make it easier to purchase foreclosures.
What is a HomePath mortgage?
A HomePath mortgage is a specially designed mortgage for a Fannie Mae-owned property that comes with certain financing perks. As one of many financing options available through Fannie Mae, this program distinguishes itself by focusing on the sale of foreclosed homes and easing the financing process for the consumer (from mortgage terms to the final sales price). For one, no appraisal or mortgage insurance is required in the home-buying process. After the mortgage crisis of 2008, Fannie Mae (otherwise known as the Federal National Mortgage Association) foreclosed on thousands of homes and started the HomePath program in 2009 to sell these bank-owned homes more productively.
To be clear, Fannie Mae is not the direct lender to a consumer but instead acts through local real estate agents who will be the ones to accept any housing offers. Further along the buying process, Fannie Mae-approved lenders will manage the selling of the loans. Under the HomePath program, the guidelines are specific to ensure that the foreclosures are more attractive.
How does it work?
In the HomePath buying process, checking your finances come first. Once all is in order, credit checked and bank documents collected, work with a local real estate agent to guide you through the process of finding the right home. These properties can be purchased as primary residences, second residences or vacation homes, or investment properties. A few HomePath lenders also offer these mortgages to LLC (limited liability company) borrowers.
Once you put in an offer with Fannie Mae for a property, you’ll want a HomePath lender to confirm the HomePath financing option and work out the terms of the mortgage. Buyers need to have sufficient credit (usually a score of at least 660, but it varies based on the lender and loan-to-value ratio) to qualify for the loans. Buyers are also required to supply a down payment of at least 5%. Mortgage terms, either fixed-rate or adjustable-rate mortgages, are flexible.
What are HomePath Renovation Mortgages?
HomePath also offers renovation loans. They are the same as HomePath loans, but are for homes that are not move-in ready. The home has to be appraised, and the loan amount is based on the home’s worth after renovations are completed. That allows renovation costs to be included in the loan. Homes can be financed for up to 95% of the expected worth of the home after renovations are completed.
What are the advantages?
The idea behind HomePath mortgages is to make buying foreclosures easier, so there are several advantages.
- There is no appraisal required on regular HomePath loans, but for renovation loans, the appraisal is required to determine the final value of the property. That saves the buyer the headache of worrying about the bank denying the loan because the appraisal falls shy of the selling price. Buyers should still consider getting an inspection, though, so they may be aware of issues in the house that aren’t immediately obvious (like mold in the walls).
- In select states, Fannie-Mae’s marketing period, called the First Look Program, prohibits investors from purchasing a property during the first 20 days that it is listed on HomePath.com. That means buyers who plan to live in their new homes get priority, and they don’t have to worry about competing with investors.
- No mortgage insurance is required for any HomePath mortgage loans. In contrast, borrowers must pay for mortgage insurance for all FHA and conventional loans on which they put less than 20% down.
- HomePath allows for expanded seller contributions to cover all or part of the buyer’s closing costs.
- Many condo projects have strict lending requirements, but buying with a HomePath mortgage can waive those requirements, making the financing process much easier.
What are the disadvantages?
- HomePath mortgages are limited to the homes listed on the HomePath website. A buyer looking to buy a foreclosure that is owned by an entity other than Fannie Mae would not be eligible.
- The high credit score minimum required to be eligible can be difficult for those struggling with previous mortgages or other loans.
- The interest rates are usually a little bit higher. Interest rates can be about a quarter to half a percent higher on HomePath mortgages than on conventional mortgages.
Buyers should weigh all of their options carefully. Choose the lender that best suits your needs and discuss your HomePath mortgage options to find the best fit for you and your new home.
To learn more about HomePath mortgages, as well as current mortgage rates and mortgage refinancing options, check out NerdWallet’s mortgage guide