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