HomePath Financing for Fannie Mae Foreclosure Property Buyers

To be successful at real estate investing, savvy investors adopt a few standard, well-proven strategies and avoid a few basic mistakes. The first one is quite well-known to all: Buy only under priced properties on favorable terms. The second step for success is to buy a property in an appreciating market environment. Third is to buy a property that may be in need of TLC and repairs, as they are often sold for much less than prevailing market rate for similar type properties.

Employing any or all the above mentioned strategies can yield significant returns for active real estate investors over the long run. Even an average property buyer can enjoy similar success by following in their footsteps. In the current real estate environment, such an opportunity can be found in Fannie Mae’s HomePath program.

If a borrower defaults on their mortgage payments, Fannie Mae forecloses according to the state laws that govern the procedures. Such foreclosed properties are currently at their historically highest point. Hundreds of thousands of Fannie Mae foreclosed properties are listed for sale on their website. As Fannie Mae is overburdened by this huge inventory, they are more keen than ever to dispose (sell) them off to buyers and investors at a suitable price.

To facilitate a quick sale, most of these properties are designated for financing eligibility under the Fannie Mae “HomePath” Mortgage Program. The flexible and less stringent requirements of this loan program are designed to give buyers an incentive to purchase and lenders to finance them. Compared to other conventional loan programs, the HomePath properties can be financed without the need for higher down payment or rigid documentation requirements.

The following are the two major incentives lenders are offered for financing buyers of Fannie Mae foreclosures. They are:

  • After the underwriting and closing, the original lender can sell off the loan to Fannie Mae. This allows the lender to unload these mortgages from their own portfolios.
  • As the number of loans they finance increase, Fannie Mae offers further incentives to the lender to earn increasing amount of fees for origination and servicing the loans.

A buyer of Fannie Mae foreclosures is given incentives under the HomePath financing program. They are:

  • Unlike the traditional mortgage loan programs, the requirement for a brand new appraisal is waived. The offer price will be used to set the property value. This in itself saves on average of $500 for the buyer.
  • Similar to FHA, VA and USDA loan programs, the need for down payment is minimal. A buyer can purchase a house with as little as 3.5%.
  • In spite of the low down payment requirement, a borrower is not required to carry any mortgage insurance. This greatly reduces the initial funds required prior to closing, while also reducing the ongoing monthly payments down the line.
  • Fannie Mae HomePath allows for extremely flexible credit requirements. High credit scores and blemish free credit history is not mandatory. Borrowers with less than stellar credit reports can qualify without much hassle.

Adjustments may be made by the lender either to the down payment requirements or the interest rate depending on the overall financial profile of the borrower.

Investment Strategies for Buying Fannie Mae Foreclosures

Strategy I – As there is a huge overhang of unsold foreclosures in the market these days, the opportunity to buy a property at the right price and terms is significant right now. To reduce the outstanding unsold residential homes and condos, Fannie Mae would consider all bids deemed reasonable. Find your ideal foreclosure listing and begin the price negotiations.

Strategy II – Forecasting is always a risky endeavor. The same applies to predictions related to housing price appreciation, but one can reasonably expect the prices to rise considering the rapid decline in housing prices over the last five years. Now may be as good a time for buying a property with reasonable expectation of value appreciation.

Strategy III – A number of Fannie Mae homes may need repair work to bring them to habitable condition. These repairs and renovation work can be completed using the funds from HomePath Renovation Mortgage program.

All the above strategies can be effectively used when applied to Fannie Mae (FNMA) foreclosures.