“The buyer insisted that we leave the ironing board behind.” “After closing, when we went back to our new home, the sellers had left Grandma behind!”
You might have heard some funny stories about home sellers from your friends and family, but not all home sales happen on the open market between individuals. If you’re looking for a cheaper house or a fixer-upper, you could end up dealing with a bank or government agency instead.
That’s not necessarily a bad thing; in fact, it can work in your favor because there’s generally less haggling and negotiation. If you’re looking at alternative sellers, you’ll soon stumble across homes dubbed “Fannie Mae HomePath.”
These houses might look like a great deal, and some of them are… but what exactly is a Fannie Mae HomePath property? Let’s answer some basic questions so you can decide whether it’s a fit for you.
What is a Fannie Mae HomePath property?
A Fannie Mae HomePath property is a house that’s being sold directly by Fannie Mae to an investor or a traditional buyer.
There are two situations in which Fannie Mae ends up owning a house. One is if the house has gone through foreclosure and Fannie Mae owned the mortgage on it. As the lienholder, Fannie Mae now owns the home.
The second is when Fannie Mae offers the previous homeowners a deed in lieu of foreclosure. The homeowner surrenders the house and walks away. The homeowner avoids a foreclosure hitting their credit report, and Fannie Mae saves money on legal fees.
Both types of houses can become Fannie Mae HomePath properties, which Fannie Mae wants to sell as soon as possible.
Cosmo Spellings is an experienced agent in Crestview, Florida, who frequently works with Fannie Mae. According to him, once Fannie Mae has foreclosed on a home, “they want to make it as marketable as possible. The mentality is that if the neighbor’s non-REO property sold for $X, Fannie Mae wants to repair their properties and make it as attractive as possible in comparison to that house.”
As a buyer, a Fannie Mae HomePath house could be your chance to get a great house at or below market value.
What kind of houses are available through HomePath?
You’ll find HomePath properties all over the country, and at a huge range of price points, because Fannie Mae backs so many loans. To find something in your area, search on the website by address, city, state, or ZIP code.
Properties in the HomePath program consist of single-family homes, condos, townhomes, manufactured homes, and multifamily properties up to four units.
HomePath properties also come in a range of different conditions; some that were acquired by forfeiture or deed-in-lieu might be in pretty good shape, while others that were fully foreclosed upon might have some larger issues due to lack of maintenance. Previous owners, angry at losing their home, could have done significant damage before they moved out.
Spellings says that when Fannie Mae first takes possession, the home is evaluated by the enterprise’s budgeting department. “It’s a mitigation of losses when it comes to reselling that property,” he explains, “but if the numbers work based on the number of repairs and what they can sell the house for, they may put on a new roof, replace rotten decking, or mitigate mold.”
If you’re shopping in a strong seller’s market, Fannie Mae could have made some repairs to recoup more money when they sell.
What’s the benefit of a HomePath home for buyers?
Fannie Mae is a mortgage guarantor, not a home seller. If Fannie Mae owns a home, it’s because it was lost in foreclosure and the enterprise has already incurred expenses on it. Therefore, these houses are priced very competitively to help unload them quickly.
If you’re buying the house as a resident, Fannie Mae’s First Look program lets you bid for 15 days before investors can bid on the house. This sneak peek gives you the opportunity to beat out the competition and score a deal — but you need to move fast!
Fannie Mae offers buyers some special financing options, like a HomeReady mortgage or HomePath Ready Buyer programs. These programs can make it easier for qualified buyers to buy a house that might otherwise be out of your price range.
Under the HomeReady mortgage program, you can buy a house with as little as 3% down. This means you could buy sooner rather than having to wait while you save up more for your down payment. While you have to complete an education and counseling course on finances to qualify, this better prepares you for homeownership.
If you have a lower credit score, you could have your parents cosign and secure the loan. But, unlike other loan programs, the co-borrowers don’t have to live in the house. You can also include any additional income you plan to make using the house, such as planning to rent out a basement apartment for $500 per month.
HomePath Ready Buyer
The HomePath Ready Buyer program is not a mortgage; rather, Fannie Mae assists you by providing additional assistance with closing costs. After completing an educational course, you can get up to 3% of the total loan amount in assistance for closing costs. Closing costs usually work out to between 3% and 6% of the loan’s total amount.
What are the drawbacks of a HomePath home for buyers?
Before deciding to make Fannie Mae HomePath homes part of your home search, prepare yourself for some potential hiccups.
Homes sold ‘as is’
HomePath homes are sold as-is — Fannie Mae might make some repairs to increase the home’s marketability, but they won’t be all that’s needed, and Fannie Mae probably isn’t going to make repairs to other issues found during the inspection. While you can get a home inspection during the homebuying process, Fannie Mae doesn’t have to fix anything. As Spelling puts it, “you always have a right to ask for the repair, but they don’t have to give you the repair.”
No contingent offers
Fannie Mae also doesn’t accept contingent offers — so if you need to sell your house before you buy one, you’ll have to do that before making an offer on a HomePath house (unless you can afford two mortgages).
The previous owner won’t be the one disclosing any issues to the house, so you won’t be getting a full picture in the disclosures, either.
Elizabeth Weintraub, an agent in Sacramento, California, who works with more than 70% more single-family homes than other agents in her area, thinks that this is one of the biggest drawbacks to buying a HomePath house. “The buyer doesn’t know what they’re buying, they don’t know if the pipes have exploded or if [there are] mold and water issues,” she explains. ”They’re taking a big chance when buying a house like that.”
There might not be a lot of selection available in your area; it really depends on the market — if inventory is scarce, then you can expect to compete with lots of other buyers for interesting homes. In areas with a strong housing market, homeowners in distress can sell in a short sale before the house reaches foreclosure.
Must use an agent
You have to go through an agent; Fannie Mae won’t accept offers from a buyer who’s not represented by an agent. While you might consider this a drawback, an agent protects your interests and keeps the sale progressing. Fannie Mae sets strict guidelines, and failure to meet them can cost you.
For example, “if Fannie Mae says we were supposed to close in 30 days and you’re not ready to close, Fannie Mae can charge you $100 per day for not closing on time,” Spellings warns. Even if it’s the lender’s fault that you can’t close, you’ll still have to pay the fine. Everyone, from the agent to the escrow company, must be on their A-game in a HomePath purchase.
Title and closing issues
Weintraub has seen issues with closing on Fannie Mae HomePath houses, particularly if the homeowner re-financed or installed solar panels. “I’ve had a couple situations where the second loan did not subordinate,” she says, which means that “the first loan, which is trying to foreclose, can’t because they’re now in second place.” When Californians lease solar panels, the lease can also become an issue in a distressed sale.
In her opinion, it’s imperative that you work with an experienced agent if you’re buying a Fannie Mae HomePath house. A good agent could “look up the history of the property, they can look at what’s recorded against it, and try to figure out what’s happening,” before you get to the closing or encounter any delays.
The right Fannie Mae HomePath property with the right agent can help you get into your dream home, but taking the time to educate yourself about what you’re getting into could make all the difference.
Header Image Source: (Pixabay / Pexels)