With nearly 800 HomePath properties available here in Los Angeles & Ventura counties and more than 50 more coming up soon, I get numerous calls/emails asking me about these properties. And now, Fannie Mae has special incentives for owner occupied buyers to provide 3.5% towards their non-recurring closing costs. Just this week, I’ve already received a couple of calls and I strongly suspect that will continue until their special offer expires on June 30, 2011.
For starters, HomePath properties are Fannie Mae foreclosures; these are properties that were foreclosed by a lender where Fannie Mae was the investor. Because Fannie Mae holds these loans, they can revise their own conventional guidelines. As a result, there are some great benefits to purchasing one of these properties.
PROS: One of the best benefits is that HomePath only requires 3% down payment, which basically allows Fannie Mae to compete with FHA loan products. The HomePath down payment can also be from either the borrower’s own funds, a gift from a relative or from a non-profit agency, which means borrowers can use it with down payment assistance (dpa).
The HomePath loan program also doesn’t require monthly mortgage insurance (MI) or an appraisal and their condo guidelines aren’t as stringent as most other loan programs (there are still some basic condo requirements). The benefits of no appraisal or MI can eliminate some of the biggest challenges that can come up in an escrow transaction.
While these are all wonderful advantages of using the HomePath loan program to purchase a HomePath property, these benefits don’t come without some of their own challenges.
CONS: While the programs benefits definitely appear to be really great advantages over other loan programs, these benefits are most certainly not free. The rates/pricing on the HomePath program is typically at least about a half a point or more higher depending on pricing adjustments than most FHA loan products.
Furthermore, it’s been my experience with this program that the reason Fannie Mae waives the appraisal requirement is that many of the HomePath properties (at least quite a few here in Los Angeles & Ventura counties) would never qualify for financing if an appraisal was required.
It’s because of the disadvantages of this program for these properties that I strongly suggest any buyer considering the purchase of a HomePath property with a HomePath loan to get a home inspection done. A competent and experienced home inspector will be able to discover the true property condition. Like any other REO, don’t expect Fannie Mae or their listing agents to disclose any thorough or extensive property disclosures regarding property conditions.
Another thing that I’ve noticed about many HomePath properties is that they tend to be overpriced; this having more to do with the fact that there will be no appraisal required to support the price than anything else. Once again, I strongly suggest that before making an offer on a HomePath property, buyers still need to have their Realtors/agent run the recent comps for the area to determine what the fair market value is for the home.
While Fannie Mae does allow buyers to use other loan programs to purchase their HomePath properties, because of some of the deficiencies of the HomePath properties, it becomes extremely difficult and in some cases impossible to use any other financing than the HomePath loan program. As I said before, under standard Fannie Mae or FHA guidelines, many HomePath properties would never qualify for financing. It’s because of this that Fannie Mae devised the whole HomePath program.
If you can tell, I am not a big fan of the HomePath program for a buyer who can’t afford to bring these homes to minimum building code standards and that is primarily because many of the HomePath properties that I have personally seen are no different than all the other run-down, dilapidated, dumpy REO’s on the market. For most of my borrowers, who are typically low-medium income buyers, many of which are using down payment assistance to purchase their first home, this is not the kind of home that they can afford to buy.
However, for an investor, this is a great program and I highly recommend it for the first time investor who is looking to establish their real estate investment portfolio, especially the all-cash investor. Fannie Mae loves all-cash investors.
Buying a home is one of the most important decisions someone can make. Today’s real estate market can be really scary, which is why it’s important to get as much information as possible before starting your search. The home buying process is not a simple process and it’s because it can get really complicated and convoluted, that borrowers today need affordable loan options that are best suited for their own needs.