HomePath Offers An Alternative To FHA Mortgage Loans
Just a few years ago 100% home mortgage financing by a home buyer was commonplace. The idea of buying a home for virtually (or literally) no money down could be accomplished by combining first and second loans. Three percent down first home loan financing was available through Fannie Mae My Community or Freddie Mac Home Possible home loan programs. While some of these programs still officially exist, I would challenge any buyer to find a mortgage lender offering them. Today, with sub-prime loans long gone from the home mortgage marketplace, most homeowners with low down payment resources have few options other than an FHA loan.
FHA loans represented just 6% of home loan originations as recently as 2005, while today, as a result of a dramatically changed mortgage landscape, they represent more than one-third of the market. The reason is simple; down payment and credit requirements. Conventional loans now require at least 5%, if not 10% down payments because of stingy banks and stricter private mortgage insurance underwriting. To get these loans, you also need near perfect credit scores while FHA requires only 3.5% down and credit scores around 620. However, there is another option that gives FHA a run for their money called HomePath.
Fannie Mae’s HomePath program allows buyers to purchase a Fannie Mae owned property for as little at 3% down, making it highly competitive with FHA. The big benefit, however, is the lack of required mortgage insurance on these loans. A typical low down payment conventional home loan requires the buyer pay mortgage insurance which amounts to roughly 1% of the loan amount per year. FHA requires both an up-front mortgage insurance premium, as well as a recurring, smaller premium of approximately 1/2% per year. While mortgage insurance premiums are largely tax deductible, they do significantly increase a borrower’s cost of funds.
Under the HomePath program, borrowers with credit scores as low as 660 can purchase one of the 86,000 Fannie Mae owned properties on the market. This is a win for taxpayers as well because these government-sponsored entities are able to convert non-producing foreclosed homes into producing assets (home mortgage loans). Another benefit to the HomePath program is that an appraisal is not normally required; a savings of $400-$500 in the Houston area. To sweeten the pot even more, Fannie Mae is offering buyers 3.5% of the property’s sale price towards closing costs and/or new Whirlpool appliances through April 30th.
To take advantage of this program, home buyers should consult an approved HomePath mortgage lender to pre-qualify for a home loan loan. They can then visit http://www.homepath.com to search for homes that qualify for this program. Homes that require light renovation get special consideration under this program as the costs of renovations and home acquisitions can be rolled into one home loan loan. Investors can join in the party. FHA loans are limited to owner-occupied properties, but under the HomePath program, investors can purchase a Fannie Mae property after it has been on the market for 15 days without any accepted offers.
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