Fannie Mae Foreclosures … Is HomePath Financing Better Than FHA?
ByFannie Mae foreclosures draw a lot of buyer attention. You can check out the homes available in your market at www.HomePath.com. If you are under the impression that a HomePath mortgage is the only loan program that can be used to finance these homes, you would be miss-informed. Other Conventional or FHA / VA loans can be used too. Fannie Mae’s HomePath mortgage offers many incentives but some folks find the higher interest rate a turn off and dismiss this financing because of it. I’m all about comparing options and running the numbers for my borrowers so let me walk you through my approach.
HomePath mortgage is a conventional financing program only available on HomePath homes. Some of the incentives that HomePath financing offers over a traditional conventional loan are:
- 3 percent minimum down payment for owner occupied purchases
- 10-15 percent down for investors (depending on the lender)
- No monthly mortgage insurance
- No appraisal required
- Adjustments for FICO scores below 720 are greatly reduced
- Seller credits up to 6 percent for owner occupied (depending on the lender)
- Seller credits up to 2 percent for investors
All good reason to use HomePath financing until you find out HomePath interest rates are higher depending on the down payment used. Now that you have some background, let’s get back to running the numbers and compare HomePath mortgage to FHA.
LOAN SCENARIO: Single family home – owner occupied
Purchase Price: $200,000 Qualifying FICO: 720 + Rate Lock:30 days
FHA HOMEPATH
- Down Payment 7,000 6,000
- Base Loan Amount 193,000 194,000
- Up Front Mortgage Ins 3,377 -0-
- Amount financed 196,377 194,000
- Interest rate 5.25% 5.50%
MONTHLY HOUSING EXPENSES
Principal & interest 1,084 1,101
Mortgage insurance 88 -0-
TOTAL 1,172 1,101
Difference in payment <71>
OBSERVATIONS
1) Down payment savings is $1,000 with HomePath
2) Monthly payment saving is $71 with HomePath
3) Likely to get more seller credits for a HomePath home than other REO’s depending on market competition
4) Without seller credits, HomePath loan will require more cash-to-close than FHA loan due to adjustments for interest rate
The KEY to HOMEPATH FINANCING:
- Know the minimum seller credits you need to negotiate
- Learn how to properly use that money to effectively lower your interest rate
- Compare FHA vs. HomePath cash-to-close for your loan scenerio so you can make the right decision about which loan program is your best option
I am being charged 5.75% on homepath. I think that is very high in this market. 107,100 3% down. Scores are in 780-790. The loan origination is like 1700. Which is over 1% but not 1.5. I read about a 2.5% but do not see it in GFE. Lender just saying have to quote high or has to pay back if GFE is wrong. I don’t know anyone have any thoughts or am I getting ripped. Had surgery so income was down due to that but still qualify and I have a rental home and a primary that I am moving out of to relocate for job.
If the interest rate on your GFE is disclosed as floating, then 5.75% is not your actual rate. 5.75% appears high BUT I suggest that you sit down with your loan officer and have them show you the lender’s rate sheet and explain all the “price” adjustments that Fannie Mae imposes for a HomePath loan. Based on the information you have supplied, there is an adjustment of 3.625% for loan-to-value (LTV’s) between 95.01% and 97%. Because you have a FICO score =>740, there would be NO additional FICO adjustment. These “price” adjustment(s) have to be paid for one way or another. The best way is to use YSP (lender credit) from the interest rate you choose to cover them. As an example, a lender’s rate sheet could show 4.875% for a 30-yr fixed is yielding YSP of 3.338% on a 21 day lock. Almost enough credit to offset Fannie’s 3.625% price adjustment. When you see a lender’s rate sheet, it makes more sense. You want the loan officer to choose the next higher rate that will yield enough YSP to cover ALL rate adjustments. The reason Fannie charges these “price” adjustments is because the borrower is getting a high LTV loan and NOT paying mortgage insurance.
If you have an experienced HomePath loan officer, they should have told you to ask for seller credits (up to 6 percent) when you made your offer. Those credits would be used pay for the “price” adjustments and that would help you get a lower interest rate. Depending on how much seller credit you get, any left over would be used to offset some of your closing costs. This strategy helps the borrower get the best interest rate on a HomePath mortgage for the least cost.
All the Best,
Barbara
I just recently purchase a HomePath home. The home was purchased significantly under market value and if I did an appraisal today would have 20% equity. My question is how long after making a homepath purchase can I refinance into a conventional loan and lower my interest rate? I believe I would have 20% equity in the home that would allow me to avoid mortgage insurance and still lower my interest rate. Thanks for the response in advance.
Hi Brandon –
How soon you can refinance into a new loan after a recent purchase will vary based on the new lender’s “seasoning” guidelines. Generally speaking, the loan officer who originated your current loan would have to wait at least 6 months before they could originate a refinance because of agreements between his company and the bank who purchased the loan.
If you don’t want to wait that long, you would need to find another loan officer who does business with a lender that has “NO SEASONING” for a rate & term refinance. I checked with some of the lenders I do business with and found ICON and MetLife who say this would be OK with their guidelines. What state are you in?
Barbara
I believe that FHA is superior to HomePath for many reasons.
The biggest is that the rate is almost a full 1% lower on FHA than HomePath.
Yes there is no mortgage insurance with Homepath, but the mortgage insurance will drop off on FHA when the balance owed is 78% or less of the Home’s value.
The market is recovering in Arizona and appreciation is just around the corner. I advocate getting a rate at or near the historic low and watching your house appreciate and then dropping the mortgage insurance. You will save a boatload of loot.
FHA is also waaaaaaaaay easier to qualify for.
The only reason to do a HomePath is if the property is a non-warrantable condo.
Thanks for this post, Barbara. I was looking for a good resource that could explain the difference between Homepath and FHA, pros and cons. This was perfect, now I can explain this to my clients.
When I wrote this blog post, FHA’s UFMIP was 1.75 percent and the monthly MI factor was .55 percent. Although the UFMIP has gone down to 1.0 percent, the monthly MIP jumped to 1.15 percent. This increase in mortgage insurance is causing buyers look for alternatives to FHA.
HomePath interest rates can appear to be very expensive vs. other loan programs. That’s because there is NO MORTGAGE INSURANCE. Make sure you find a loan officer who understands how to “level” the interest rate playing field so your buyers can truly evaluate the pros and cons.
Barbara
I am told I cannot not use a FHA loan for a coop (I live in CA), is this true. But when I research I see a FHA 203K loan they say can be used for co-ops. I currently am in escrow with a HomePath loan in the works and the interest rates are too high. I hope it’s not the only way I can go for a low down.
H i Lisa –
I don’t have any experience with co-ops. If you negotiated seller credits they can be used to offset the fees Fannie charges that makes the rate for HomePath loans higher. An FHA loan will have 1.15 percent mortgage insurance charged monthly but HomePath doesn’t. Ask your loan officer to compare the total housing payment on both loans. You may be pleasantly surprised.
All the Best,
Barbara
Hi Barbara,
Last time I checked my credit score was like 660 I think. What do your FICO score needs to be for homepath?
Hi Sheri –
The minimum qualifying FICO score for the lenders I work with is 660.
Check out my other blog “Best Kept Secret, Fannie Mae’s HomePath Financing Program”. In the comment section I answer many questions about the relationship of FICO scores and interest rates for this loan program.
All the Best,
Barbara
Does anyone know if there is a minimum homepath mortgage amount? . . . I saw a condo yesterday . . . listing says it qualifies for homepath financing as I guess its owned by fanny . . . sale price is only $30k and my x mortgage company says $40k in minimum they’ll lend as many other bankers r on same page . .. . . scartching head ! ! !
tanks
Hi David –
Mortgage lenders on the “wholesale” side of lending do have minimum loan amounts they are able to offer for any loan program due to the “Section 32 High Cost” regulation. You should have better luck getting a $30K mortgage using a retail mortgage lender such as your local bank.
All the Best!
Barbara
I am considering purchasing a home and would like to know if there is a short sale seasoning requirement for using HomePath? I had a short sale 24 months ago and I am wondering if that would prohibit me from getting a Home Path MTG.
Thank you
Hi Roger –
The answer is Yes.
HomePath loan is a Fannie Mae program so Fannie short sale guidelines apply. The wait period is 2 years with 20 percent down, 4 years with 10 percent down and 7 years for higher LTV’s. These wait periods assume no extenuating circumstances for the short sale.
If you are choosing Homepath because of the minimum down of 3 percent (for owner-occupied) then you would have to wait 7 years.
Not sure if you are aware but FHA’s wait period is 3 years for a previous short sale OR foreclosure. The minimum down is 3.5 percent.
All the Best,
Barbara
Hi,
Does anyone know about buying a home that was previously a homepath? We live in MN and want to buy an investment property, we found a home we like, but found out it is in the homepath (system)…and in order to buy it you have to buy as primary resident and occupy the property. Does anyone know how long you have to owner occupy the property for? Could we buy and live in it for two weeks and then rent it? Or, is that not an option?
Thanks,
Mandy
Hi Mandy –
I’m not familiar with the term “in the homepath system” or any requirements that prohibit a seller from selling their home to an investor? Please provide additional information.
All the Best,
Barbara
Hi,
Does anyone know if there is a seasoning period on down payment funds when purchasing a Homepath property as an investor?
Thanks,
Sarah
Hi Sarah –
Generally speaking, down payment funds need to be seasoned for 60 days.
When we talk about seasoning, it means once money is deposited into a checking/savings account, it needs to be reflected in the balance forward and no longer show as a deposit. This is done to avoid having to explain where the money came from. Hope that makes sense.
If you are borrowing funds from a 401k or other asset that you own, then it doesn’t need to be seasoned because its “your” money and not coming from an outside source. You will have to explain and source any deposits listed on bank stmts that are not a direct deposit paycheck.
FYI … lenders require the borrower to submit the most recent two months bank stmts for all checking, savings, investment accounts listed on the loan application and they need to show sufficient funds to close escrow.
All the Best,
Barbara
What are the odds of getting a homepath loan if your credit score is around 630, the debt bringing it down is all medical debt? The home we are looking at is $70,000, well below what our combined income is and I believe the mortgage pmnt would be well below what we have been paying in rent for past 4 years.
Hi Kerri –
I recommend meeting with a loan officer to see if you would qualify with that FICO score. The minimum FICO score will differ from one lender to another. If you did qualify for HomePath financing with a 630 score, I can say with certainity the interest rate would be well above the market because of Fannie Mae “price adjustments” for a low FICO score.
FHA financing may be a better option for you. A loan officer can compare both programs so you can make your best decision.
All the Best!
Barbara
Excellent Blog!
With HomePath financing, how do they factor in rental properties? We currently have a rental property that has a tenant, but we are unable to sell it right now due to the market. We would prefer to sell the home, but it is not currently possible. Would we have to qualify for BOTH mortgages in order to purchase a HomePath home? We were told that we might have to with a conventional loan and that puts a house quite a bit out of our reach. We have a down payment and good credit. The tenant has been in the house for a while with no late payments.
HomePath financing seems like an excellent option, so I would be willing to wait for the perfect house if we are able to be financed.
Hi SG –
HomePath is a conventional loan program and although guidelines will vary from one lender to another, the following information is based on our bank’s guidelines.
If I understand your comment correctly, you own a rental property that is underwater and you don’t have a personal residence but would like to buy a HomePath property.
With no equity in your rental property, you will need to qualify with principal, interest, taxes and insurance for the rental property and the proposed property. You will also need to have up to (6) months reserves for both properties.
The only other suggestion I have is getting gift funds from a relative or a loan against your 401k to increase your down payment and potentially allow you to qualify with a smaller loan balance.
All the Best,
Barbara
Hi Barbara:
Excellent blog! Very informative.
I am looking at a house that qualifies for a Homepath Renovation Loan. I got a preapproval letter from a few lenders but the closing cost is outrageous. It is almost 12K. What would be the best way to try to waive or lower this closing cost? My credit score is 720+. How would we get that seller credit that you mention in your earlier posts? Thanks,
Sam
Hi Sam –
Glad to hear you found the blog informative. The seller credit would be something you ask for in your purchase contract and negotiate.
Without seeing an itemized list of what is included in the $12K and know the amount you are financing, I can’t comment on the costs.
All the Best,
Barbara
Hi Barbara,
This is not a HomePath question but i hope you can help me find some clarification on this particular topic of interest.
I am going through the process of purchasing a Fannie Mae “as is” foreclosure with a VA loan. The house is a 1995 home. The house was just inspected and the inspector indicated the roof may need replacing. The house has yet to be appraised. I am having a professional certified roofer inspect the roof. But my realtor has indicated to me that Fannie Mae foreclosures will not pay for roof replacement even if the appraiser indicates the roof needs replacing. She stated that Fannie Mae will replace the roof but add the cost of the roof to the total cost of the purchase price.
Now, i’ve talked with my VA loan officer and she stated that Fannie Mae will pay for the roof replacement if the appraisal indicated the roof needs replacing. Being a VA loan, Fannie Mae will pay for the roof replacement to bring the house to livable condition with out adding to the price of the home.
Which of these sounds correct?
Thank you,
Roger
Hi Roger -
Since you are using VA financing, your lender is going to require repairs for all items that the appraiser calls out in his report including roof. Appraisers don’t generally get up on the roof to inspect so if the wear is not visible from the ground you may be OK. But that’s a big risk to take.
I think your realtor is referring to a HomePath Renovation loan. Fannie’s Homepath website indicates if the property qualifies for the program. I’m not aware of any repair loans available for VA financing.
I’m not familiar with what your VA loan officer is talking about? Did you negoiate roof repairs in your purchase contract that Fannie agreed to?
I counsel my VA borrowers and their realtor to avoid properties requiring major repairs because VA is so particular about condition of a property.
All the Best,
Barbara
Hi I would like to buy a bank owned property, I have a FHA loan, the owner of this home took everything out toilets,sinks counters. I don’t think FHA will allow me to buy this house I’m unsure about the guidelines. My question is can I also apply for homepath even though I’m already FHA appoved? Will homepath allow me to purchase this home? and do you know what the FICO scores for homepath? Thank you
Hi Michelle -
An FHA loan will not work on a property in the condition you describe. HomePath financing is available only on HomePath properties. You can search for these homes at http://www.homepath.com.
All the Best,
Barbara
Hi Barbara,
I was wondering can you get pre-approved from any lender and still buy homeopath properties or do you have to use homeopath specified lenders to buy? My fico is 665 but experian shows 720. I can out 10K down, first time buyer here and I really don’t want to go $1150 / month including taxes etc, what is the highest amount of loan can I qualify for?
Thanks in advance
Hi Sam -
Most lenders now days offer HomePath, Conventional, FHA and VA financing. When getting pre-approved, make sure to have your loan officer discuss all possible programs you qualify for. It can be one stop stopping.
The loan amount you will qualify for depends on income, debt, credit history and other factors. Your loan officer can help you figure that out.
All the Best,
Barbara
I am currently trying to purchase a Homepath home as an investment property. My primary residence is under a VA loan so I believe that conventional financing is my only option. I have 20 percent for a downpayment, but closing costs would push me over budget. Could I either put 10 percent down, or roll closing costs into the purchase price? How willing are lenders to do this? Also, would having a would be renter sign a conditional lease improve my standing?
I purchased a home through HomePath 2.5 years ago with an interest rate of 5.75%. Naturally, the home has decreased in value since then and I am nowhere near 80/20 Debt-to-Equity. I know FHA has a streamline refinance process where fees are small and you do not need 20% equity to refi; is there any similiar process with HomePath or am I stuck with 5.75% for the unforseeable future?
Hi Caleb –
Call your loan servicer and ask if your mortgage qualifies for the HARP DU Refi program.
All the Best,
Barbara
Hi Sean –
The minimum down payment required to purchase a single family HomePath home for investment is between 10 and 15 percent. The minimum varies by lender so ask your loan officer what their lenders require.
Generally speaking, lenders will not allow a borrower to use rental income from the proposed investment towards qualifying unless the borrower has at least 30 percent equity in all existing mortgages. That means you will need to meet DTI guidelines that include present mortgages and the proposed mortgage along with up to 6 months reserves for PITI. Your loan officer can tell you what the guidelines are for their lenders so you know up front.
I highly recommend that you have your Realtor ask for 2 percent seller credit when you write offers. The credit will help you offset closing costs. 2 percent is the max when purchasing investment property.
All the Best!
Barbara
Hello all. I have a question. Me and my wife are looking to get homepath financing. We had a forclosure/ sheriff sale dec 17,2010. How long would we have to wait to qualify? Thanks, Gary
Hi Gary –
7 year wait after foreclosure to qualify for HomePath financing because its a Conventional loan.
All the Best,
Barbara
I bought a condo in Titusville, Florida 3 yrs ago. I had seller financing with a balloon note at the end of three years. Because I am now “upside-down” on my condo, and there is a Land Lease, I was unable to obtain financing. And I really do not want to live here anymore. We have about 80% rentals now. I went to a lawyer and we are working out a deal where I sign the property back over to the original seller at the end of April 2012 and he will let me live here for free until mid Nov 2012. I will have no foreclosure and no deficiency. My credit score is around 618, mostly small mecical bills from a couple of years ago that I should be able to submit to Medicaid and Medicare. I want to buy a house. What are my options? What loans could I qualify for? And who should I see about fixing my credit? I am a very motivated buyer. I will do what ever it takes to be a home owner. Thank you, Leilani
I am doing a homepath loan and have an interesting situation and I am wondering if you can help. This is about seasoning of funds. My spouse is getting the loan alone, not with me as coborrower and the downpayment funds were from my inheritance account to our joint account and it was transferred less than 60 days ago. I unfortunately wrote the check to myself at the time. Will I have to write a new check to my spouse in order to do this as a gift? Or will the statements for the two accounts showing the check.clearing each be sufficient?
Looking for the following
the amt of points to buy dow the rate on great credit
Homepath renovation on a condo in Florida . Would want a 30 year fixed rate , 45 day lock , loan amt lets say 75 to 77 K . We can put 5 % down or better to help the rate and pay some points
Thank you
please leave a way to contact you .
To Leilani –
Check with a local lender about getting qualified for FHA financing. The minimum down payment is 3.5 percent. When you find a loan officer you like, ask if they will help improve your FICO scores. Once you are satisfied with their knowledge and service, allow them to run your credit.
To Andy –
Guidelines for seasoning of down payment funds will be lender specific so ask your loan officer to read the lender’s guidelines on this. They can also ask the underwriting dept what they require. Don’t move the money again. My guess is your spouse will be able to use the funds now as long as you can papertrail the deposit and write a letter of explanation to the lender. Because you are the spouse and living with the borrower the money would not likely be considered a gift.
To Steve –
I am licensed to do loans in California only. My recommendation is for you find a local loan officer who does HomePath Renovation loans. With 5 percent down and a qualifying FICO score of 740 or higher, the Fannie Mae fees will run you about 3 percent. There may be an additional fee for the property being a condo. It depends on the lender. The best way to pay for these fees is to negotiate a seller credit to cover them in your purchase offer. At this time, HomePath guidelines allow up to 6 percent seller credit for an owner occupied property. The amount of seller credit you will be successful negotiating depends on market competition.
All the Best,
Barbara
Hi Barbara,
So much good info on here, thanks! I have been pre-qualified for FHA and a townhome I’m looking at is a Home Path property. My dad is giving me 5000 to put down on an 800000 property. However, I just found this out and don’t have the funds deposited yet. What are my options as far as that money being seasoned and is there any ways to work around the60 days?
Thanks!!
Eek..that should say 80,000 not 800,000!
Hi Christie –
No problem. Since the $5000K is a gift it doesn’t need to be seasoned. Let your loan officer know in advance that you will be getting a gift for down payment and they will explain the best way to document and move this money.
Generally speaking … once you go into contract and open escrow, your loan officer will give you instructions on how Dad can get the gift funds to the Title company rather than paid to you.
All the Best!
Barbara
My husband and I just put in an offer in a property who would only take a homepath loan.This would be our first property. I am little confuse with the down and the closing cost. The bigger the down the lower the closing cost. What does one thing have to do with the other ? It seems to me that this type of loan requires more money upfront and a higher interest rate. Is their any benefits to this type of loan?
Sorry I forgot to mention. In the offer our agent did not mention anything about “Seller Credits” would it be to late to ask for them and resumit the offer.
Thank You in Advance
Hi Claudia –
Your question “the bigger the down the lower the closing cost” relates to fees that Fannie charges the borrower based on loan-to-value and FICO scores. Higher FICO score and down payment equal lower Fannie Mae price adjustments.
It is confusing and that’s why a borrower needs to discuss this financing option with their loan officer who can explain the fees on their rate sheet and then develop a strategy to offset them using a combination of seller credits and/or lender credits. This education should be done BEFORE a borrower makes purchase offers.
Regarding your offer. If your offer has already been accepted without asking for seller credits, it may be too late to go back and negoiate them now. You must discuss this with your Realtor to get their advice.
All the Best,
Barbara