Purchasing a foreclosed or distressed property is a popular way for future homeowners or investors to renovate a property and possibly gain quite a bit of equity in the process — but buying one of these homes in a conventional manner can quickly become a long process full of red tape and complex inspections for renovations. The Fannie Mae HomePath Program works with mortgage services and agencies to sell distressed properties in a streamlined manner.
The First Look Option
Fannie Mae HomePath is unique in the foreclosure market in how it operates with listings. A foreclosed property is immediately listed under the Firs Look Option. This gives homebuyers early time to look at the property on the first 20 days before it’s available to investors.
Saving With a Foreclosure
Fannie Mae HomePath lists all available projects on a single site for homebuyers. The financing process of the home uses a conventional mortgage with a few differences. Many homebuyers seek to save on foreclosure costs by using the flexible 5% down payment requirement and less stringent credit requirements. A FICO score of at least 660 is preferred if the home will be undergoing rehabilitation funding. A unique factor of these types of loans is the lack of mortgage insurance or appraisal requirement. Appraisals are required if the home will undergo the HomePath Renovation Program.
A written offer is made to Fannie Mae instead of the buyer directly. Fannie Mae obtains the deed-in-lieu early in the foreclosure process from the homeowner in exchange for taking over mortgage payments.
Property Renovation and Rehabilitation
HomePath offers more lenient financial assistance programs depending on the property. Mortgage insurance is typically not required and the debt-to-income ratio on the loan can go up to as much as 50% in some cases. The biggest incentive for many future buyers is the renovation potential. Renovation mortgage financing allows for renovation costs to be included in the mortgage loan. This differs from construction loans by allowing for the whole draw of construction costs to be given at once in the entire mortgage.
There are a few renovation procedures to be aware of with the Fannie Mae HomePath property. An appraisal is required to determine the value of the property for the purpose of home improvement cost potential. Repairs to the home using these funds cannot be part of a do-it-yourself project. All major repairs should be hired out with the proper contractors.
Pros and Cons
The Fannie Mae HomePath program offers a variety of resources to potential homeowners and investors. Significant savings can be made by eliminating the long-term cost of mortgage insurance. This insurance is tacked on traditional mortgages during the life of the loan as a result of a low down payment. The low down payment allows thrifty homebuyers to save even more money in the initial phase of purchasing a foreclosed property. Potential homeowners who take advantage of the renovation loan may be able to keep costs considerably lower than a traditional construction loan associated with building a new home. New home costs often entail paying several third party vendors that add extra fees. HomePath allows the homeowner to contract work out themselves.
However, there are a few risks to be aware of with this type of mortgage program. The lack of a required inspection requires buyers to obtain due diligence in ownership. Properties are usually sold “as is” and show the home at present condition for closing. Buying a foreclosed property also has some risk with the lack of the previous homeowner in the closing process. The FHA 203K loan can sometimes be more flexible with a lower 3.5% down payment for renovation.
Obtaining access to a listing is simple through the Fannie Mae HomePath Property website. This will allow you to decide if it’s worth taking advantage of the First Look and consider buying a foreclosure.