HomePath Loan or FHA Loan?

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For many years, when it comes to buying a home, the FHA loan program has been one of the most popular choices for people. But with the downturn in the real estate and with the rising number of homes being owned by lenders (including Fannie Mae), the Fannie Mae HomePath loan program is getting increasingly popular with home buyers.

Fannie Mae HomePath Mortgage Program: Advantages

The HomePath Mortgage Program was created by Fannie Mae because of the large number of homes that are owned by Fannie Mae and their desire to sweeten the financing offer to entice home buyers to buy them. Some of the things that Fannie Mae did with the HomePath loan program actually make it a more attractive option than an FHA loan. There are three main advantages of a HomePath loan over an FHA loan: a smaller down payment,

Fannie Mae HomePath Loans: Smaller Down Payment

The HomePath loan program requires less money for your downpayment – and let’s face it, when you are buying a home every dollar you can save on a down payment can go to other things like furniture, repairs or moving costs. The HomePath mortgage requires a minimum down payment of 3% versus 3.5% required for an FHA mortgage and both of the loan programs allow the down payment to be “given” to you under approved circumstances.

HomePath Mortgages Require No PMI

PMI stands for Private Mortgage Insurance. Mortgage insurance is generally required for conventional loans that have less than 80% loan-to-value. With FHA loans, they also require mortgage insurance. With the Fannie Mae HomePath mortgage program, no PMI / mortgage insurance is required. Because PMI is not required on a HomePath loan, expect a monthly payment with a HomePath loan to be less than with an FHA loan or conventional loan with less than 80% loan-to-value.

HomePath Loans: No Appraisal Required

When buying a new house, virtually all loan programs require that you get an appraisal from a certified appraiser to prove the homes value. Not with the HomePath loan program: there is no appraisal required on a HomePath loan.

When financing a home, both the FHA loan program and the HomePath loan program are great options – but if it comes down to a situation where you have a choice between the two, most people seem to agree that the HomePath loan program saves them money.

Justin McHood

Justin McHood is a Mortgage Commentator living in the Phoenix, Arizona area and is happy to answer any mortgage-related questions that you may have.
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Justin McHood is a Mortgage Commentator living in the Phoenix, Arizona area and is happy to answer any mortgage-related questions that you may have.

1 Comment

  1. As a loan officer, I agree that the Homepath is a good program for buyers to take a look at, however, there are few things which a lot of folks are not aware of;

    1. The FICO credit score to obtain 3% down payment financing is at 700 and the DTI ratio is pretty firm at 45%. FHA is 3.5% down, but you only need a 640 FICO score to qualify and the maximum DTI ratio can be stretched quite a bit further than 45% with compensating factors.

    In addition, here in California, we have a hybrid FHA option called CALHFA, which combines the standard FHA program with a state bond measure and requires only 1% down and allows DTI ratios to 55%.(Yea, I know that’s a lot of stretching!) And the rate today is only 4.250%, 30 years fixed rate. It does include a 3% grant for closing costs or can be used for down payment (more common).

    2. Depending on whether you put 3% (700 FICO score) or 5% (660 FICO Score) down on a Homepath property, the risk based pricing add-ons equate to about a .250% to a .500% interest rate bump. The “PMI” factor.

    So the bottom line is if you have the credit score (660+) you have access to additional inventory. If your score is below 660, you are looking at FHA all day long.

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