Wednesday, April 13, 2011
Using Home Path to Close Sales
With all of the bad news circulating around us, it is nice to be able to report a little good news for a change. On April 11, Fannie Mae introduced some new incentives to make their REO properties more attractive for the potential borrowers.
I have written about the Home Path program before. By logging on to http://www.fanniemae.com/ and then clicking the Home Path tab, borrowers and their agents can get a list of Fannie Mae owned foreclosures in their area which are eligible for the Home Path program. Borrowers wishing to purchase these properties as a primary residence need only 3% down (which is less than the 3.5% down required by FHA). The loans are available at competitive interest rates with no mortgage insurance, which saves the borrower considerable money.
I have closed one Home Path loan. Mine was for an investment property (yes, Home Path works on second homes and investments also.) The borrower was purchasing a $400,000 Fannie Mae-owned home. He could have gotten up to 90% financing with no mortgage insurance, but because he had the funds and wanted the lowest interest rate he could get, he decided to make a 25% down payment. (The interest rate is closely tied to the down payment on a HomePath--borrowers are basically paying financing into the interest rate for the privilege of making a smaller down payment.)
The Home Path loan is underwritten very much to normal Fannie Mae guidelines except that it does not require an appraisal. And as we near a potential double dip which threatens to further reduce home values, not having an appraisal can save the deal. Remember that Fannie Mae currently owns these homes and Fannie Mae is providing the new financing on them, so Fannie accepts the sales price as the value of the property.
Our investor allowed the seller to pay up to 2% of the buyer's closing costs because ours was an investment property. Check with your individual investor on this before making any promises; lenders have significant overlays.
Yes, Fannie Mae does pay real estate agents a commission. That was a question in the comments' section the last time I wrote about this subject, and I now have verified first-hand experience to back up my assertion that they do. Think Big Work Small reported that Fannie is offering an additional $500.00 bonus to the agent for a limited time, but I was unable to verify that on the Fannie Mae website.
Now for the new incentives: starting April 11, Fannie Mae is offering to pay 3.5% of the borrower's closing costs on the purchase of a Home Path home. The initial offer must be presented after April 11 and must close before June 30. This closing cost incentive applies only to borrowers who will reside in the home as their primary residences--no investors can use the closing cost incentive.
So let's look at what this would mean. Even if the loan originator's compensation is consumer-paid, 3.5% should cover all of the closing costs, and he should need only the 3% down payment. And according to the posted Home Path guidelines, the entire down payment can come from a gift, a grant, a loan from a non-profit organization or an employer. A young couple getting a wedding gift from the parents of $6000.00 could use those funds as the down payment on a $200,000 home and need no other cash out of pocket.
One last item to remember--not all wholesalers or loan originators offer the Home Path program. You may need to do some checking to see who in your area can finance these deals.
As with any REO, Home Path loans require that the closing package go to Fannie Mae for review 72 hours before the borrower signs, so plan your closings accordingly. And use this program this spring to sell some houses, take some foreclosures off the market, and earn some money.
Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. For more information, visit her website at http://www.frontier2000.net