Fannie Mae Homepath Program Explanied

The Fannie Mae Homepath loan program is a great option for the right type of buyer. How will a buyer know if the Homepath loan is the correct program for him? Let's examine a few distinct features of this program to help determine who it benefits the most.

Features

No Monthly Mortgage Insurance

This is usually the biggest selling point for a FNMA Homepath loan. Most times it is advertised as "No Mortgage Insurance" while this is technically true it is a bit misleading, while there is no monthly mortgage insurance premium that you will pay, there are Loan Level Pricing Adjustments (government mandated fees, based on the riskiness of the loan), which are typically going to land you with the highest interest rate available for that day, plus additional closing costs depending on the occupancy of the property, so while you are not stuck with a mortgage insurance payment for the life of the loan (like with an FHA loan), you are paying a higher interest rate for the life of the loan. Generally speaking the difference in the interest rate between a standard FNMA loan and a FNMA Homepath loan is less of an increase in the monthly payment  than monthly mortgage insurance would be. However even though it is not labeled as mortgage insurance you are effectively paying an upfront mortgage insurance fee in the form of Loan Level Pricing Adjustments and monthly mortgage insurance in the form of a higher interest rate.

For the right borrower, this is acceptable and even advantageous. 

No Appraisal Required

This is one area that Homepath can save some money, an average appraisal at  least in my area runs between $400 - $500. A Homepath Loan does not require an appraisal and uses the contract price for the value of the home.

When Does a Homepath Loan Make Sense
There are several scenarios in which it would make sense to consider a Homepath Loan

• A borrower with a high credit score, that would like to keep more of their money in their bank account rather than put down 20% to avoid mortgage insurance on a primary residence. Let's put this into numbers, let's assume a loan amount of 200k for easy math, a borrower with good credit would have to put 40k down to avoid mortgage insurance, with a homepath loan they could put down 5%  or 10k and pay about 50/month more for their mortgage, this could make sense to a borrower if their 30k is worth more to them than 50 monthly. Especially if the house they are purchasing is viewed as something that they will want to upgrade from in a few years.
• A borrower that wants to purchase an investment property that doesn't have enough money in the bank to put 20% down. Investment properties cannot have mortgage insurance on them, so the only option most of the time is to put down 20%, with the Homepath program a borrower can put down 10% and still avoid mortgage insurance. Even considering the loan level pricing adjustments for an investment property on a Homepath loan, the 10% plus additional fees is still likely to be around 12-13%. This makes Homepath properties attractive for investors who would rather spread their assets across multiple properties
• If a borrower wanted to avoid an appraisal for any number of reasons, the Homepath loan is a good solution. If the borrower is willing to pay the asking price for a Homepath eligible home, but is worried that the house will not appraise for the asking price, then the Homepath Loan is a good option. If  a home inspection was completed, and the property needs some work, but the borrower is comfortable purchasing the house then making the repairs, the Homepath loan is good, because any issue that is noted by an appraiser will need to be resolved prior to closing. If there is no appraisal done, then there is no potential for improvements to the property being a condition to getting an approval on a loan.

These are just a few examples where the Homepath program would make sense for a borrower to make use of. Keep in mind that Homepath loans are only available on Fannie Mae owned properties that are Homepath eligible. Homepath loans are not required on Homepath eligible properties and are sometimes not the best option even when available, however for the right set of circumstances it is a fantastic product. Speak with your mortgage professional to ensure that the program makes the most sense in your given situation

When Purchasing A Home, Where Do I Start?

I hear customers saying all of the time, "what do I do first?". This may not surprise you coming from a mortgage professional, writing on a blog called Florida Mortgage Pro, but the absolute first thing that you want to do is talk to a mortgage professional, even before a Real Estate Agent and here is why.

Start With a Mortgage Person?

I believe that you should start by seeing a mortgage professional for the following reasons, and I believe that many Real Estate Agents would tell you the same. Speaking to a mortgage pro first will have many benefits, the following are just a few.

1. Realistic Expectations: Nothing makes the home buying process more frustrating, than seeing a house that you love, only to find out it is above your price range. Every house that you walk through afterward is compared to the house that you loved, but couldn't afford. It is likely that any house with similar features will be similarly out of the price range, and therefore any house within the price range will be missing features that you love about the house you cannot afford. It is better to look know what your price range is, and look at houses you can afford. Your loan officer can also give you the monthly payments for different loan amounts, it may be that you qualify for $300,000 at 100% financing, but you are only comfortable with the monthly payment on a $150,000 loan. If that is the case you don't want to spend time looking at $300,000 properties, but you won't know that for sure, until you speak to a loan officer.
2. Pre-qualification or Pre-Approval: You are going to need at least a pre-qualification letter from a lender before any listing agent will take an offer you submit seriously, so it is better to have the letter ahead of time in case you quickly find a house that you love. Also a lot of the more experienced buyers agents don't want to spend a lot of time with you until you are pre-qualified as well and for good reason, if you cannot get a mortgage than you are wasting your own time as well as their time. Another benefit of seeing you mortgage professional first is, that if they offer pre-approvals like Freedom Mortgage does, you can obtain a loan commitment before you identify a property, this tells a seller and listing agent that they do not have to worry about accepting your offer only to have it fall through because you are unable to obtain financing. A pre-qualification letter means that a loan officer thinks he can get you a loan, a pre-approval with a  loan commitment means that an underwriter has said that you can have a loan based on your information.
3. Know Your Loan Options: Your sales contract is going to set the maximum amount of financing that the seller is willing to accept, your mortgage professional will be able to discuss with you the different loans that you qualify for and in your situation is it better to go with 80%, 90% or 95% financing, what are closing costs likely to look like? Are you a veteran, eligible for the VA loan? Is an FHA loan or Conventional loan better in your circumstances? You may want to take advantage of the USDA program and their favorable terms, but the program is not valid in all areas, you don't want to look at houses that will not qualify based on their location. These are questions that your loan officer will be able to answer and it helps to know them ahead of time, to make sure you are being effective with your time looking at houses.

While your real estate agent is going to be the person to help you find the house of your dreams, it is always wise to make sure that the house of your dreams, fits within the budget of your reality first. The only person that is going to be able to help you figure that out is your mortgage professional, especially in the market we are in right now with the interest rates being as volatile as they have been over the past few months.

What Documents Will I Need?

Your loan officer will be able to tell you exactly what documents their lender(s) will require but here are a few items that are pretty consistent across all lenders

1. Income Documentation: The days of "this is how much I make , take my word for it" are over, any income that is used to qualify you will have to be verified, Here are some quick guidelines.
1. Plan to bring you most recent paystubs at a minimum and all w2s and 1099's from the previous year, it is always a good idea to provide your loan officer with the previous years tax returns as well.
2. If you are commissioned or self employed, 2 years of tax returns, including w2s and 1099s
2. Asset Documentation: The days of "this is how much I have in the bank, take my word for it" are over, any assets you use for purposes of paying a down payment or closing costs are going to have to be verified
1. Most Recent Bank Statements
2. Statements for any investment or retirement savings that you will be drawing from for down payment or closing costs
3. Photo ID: Passport or Driver's License are the best.

Typically that is enough to get you started, but your loan officer will be able to walk you through any additional information that he or she may need.

203(k) Rehabilitation Loan, Is It For Me?

What is an FHA 203(k) Loan?

There seems to be a lot of confusion about the 203(k) loan from FHA. It is easy to see why, just look at the name, when I think of rehabilitation I think of a long drawn out battle. If I close my eyes and imagine a property that I would need a rehabilitation loan for I picture an old dusty mansion with exposed pipes, a broken down roof with mold damage everywhere, the hard wood floors are worn, warped and need replacing, there are holes in the walls exposing daylight through the bricks and I picture the only thing salvageable being the foundation and load bearing walls. In truth, the 203(k) is perfect for that type of home, but it is also a good program for other types of homes as well. Let's examine some of the options available with this wonderful program.

What is the 203(k)...Really?

One of the questions I'm most commonly asked is "Do you think that this property will pass FHA inspection?". My reply is always the same, as much as people seem to believe that FHA has their own super strict inspection, the do not. There is no inspection required by FHA. They do require that the house is insurable, and sometimes the insurance company will require a 4 point inspection, but FHA doesn't require it. The only other "inspection" required is the appraisal and as long as there are no obvious reasons for the house not to be in good livable condition it passes FHA guidelines. Why do I bring that up? Because the first thought I get when I think about a "rehabilitation" loan is a loan for properties that don't pass FHA's "required inspections", but the 203(k) is so much more than that.

If I were naming the 203(k) loan product, I would have used a slightly different term than rehabilitation. I would have called it the 203(k) Home Improvement loan. This loan can be used to modernize a perfectly livable home, or to change the flooring in a house because you would prefer bamboo flooring to carpet, or tile flooring to hard-wood because you like it better. There is a minimum $5,000 repair threshold in order to do the loan, that has to be met on structural changed, such as remodeling a bathroom and kitchen or changing the flooring. After that 5,000.00 threshold is met, you can even include items like new appliances.

Another great part of this program not many understand is that the 203(k) can be done as a re-finance to a home you already own, this truly makes it a home improvement loan rather than a rehabilitation loan.

Limitations

Of course this is still an FHA loan, so only owner occupied properties are eligible, though the program seems like the perfect fit for the investor buying a foreclosure property that needs some updating, investors need not apply. However a person looking to buy a foreclosed home as their primary residence is the perfect candidate for this type of loan.

Also the process for a 203(k) loan does take longer than a traditional FHA loan, but when you do move in you can have the house completed to the way you like it, with the repairs done by certified professionals and the cost rolled up into one payment with your mortgage.

All of the work must be properly permitted and completed by professionals that are licensed and insured, so there is no getting Uncle Larry to do the work for you to save money. For the right borrower, the 203(k) loan is a fantastic product and should be seriously considered as an option for those not 100% satisfied with the house they may be purchasing. I for one, am very excited about the opportunity to start offering these loans to my clients again.

If you are a realtor with a house that has been on the market for a while and is in need of some updating, it would probably be a good idea to talk about the 203(k) option with your favorite mortgage professional