Is Fannie Mae HomePath the Right Path?

How the new Fannie Mae HomePath financing program works and how to use it wisely.

The Federal National Mortgage Association (FannieMae) recently announced a new program called HomePath® Financing which allows for special financing on designated foreclosed properties now owned by Fannie Mae. Note that this loan product is only available to those properties currently owned by Fannie Mae. These listings are often designated as potential HomePath possibilities on the MLS listings, and you can also use the HomePath website to confirm whether or not a property is eligible.

HomePath financing is only available through lenders that have specifically been chosen by Fannie Mae.

There are two key features to the HomePath program: (1) it does not require an appraisal and (2) it does not require PMI (Private Mortgage Insurance). It will help finance properties where the appraisal or condo requirements would be a hurdle for other forms of financing. The waiving of PMI will help where a loan approval is possible but no PMI company would write a PMI policy (e.g. condos with less than 10% down). In addition, the HomePath program requires limited down payment â€" 3% for owner occupied and 10% for investment properties.

Just like all Fannie Mae (and Freddie Mac) programs, the HomePath product comes with pricing adjustments. It is certainly not the lowest cost financing available. To better understand this we will break the use down in two groups: 1. Owner Occupied and 2. Investment properties.

Owner Occupied
The main reason to use HomePath for someone planning to purchase a home would be property issues that prevent it from being eligible under other programs. A good example would be a condominium unit with either no condo association or a very low owner-occupancy rate. The buyer would have to put 3% down which compares to 3.5% for FHA or as little as 0% under the some programs. In other words, the down payment itself is no reason to choose HomePath. The cost is higher than under any other program. A buyer putting only 3% down would have to pay a minimum of 3.625 points up front (FICO >719, maximum is 4.875% (660 FICO). However, it is important to note that a 6% seller credit/concession is possible for owner occupied purchases so the points can be covered by that.

Investment Properties
The HomePath program is perhaps the only program that allows for the purchase of investment properties with as little as 10% down (only singles and 2-units; 3-4 require 25%). This really opens a door that has been closed for a while as there appears to be many interested in acquiring real estate as an investment but the down payment is a hurdle. Under this program the current limit of not more than 4 properties financed by same borrower with Fannie Mae is expanded to the “old†10 unit rule. Note that after 4 properties the down payment required goes to 25%. The adjustment for the property being investment is 2.5 points vs. normal 3 points but with less than 20% down the buyer would also have to pay for the no PMI option and that is an additional 1.75 points for a total of 4.25 points. No special treatment for seller credits on investments, standard rules apply.