For many people, the dream of buying a home seems unattainable. Between high rents, student loan debt and overheated real estate markets around the country, even those with high salaries can find themselves unable to save what they need for a down payment and closing costs. With these pressures in mind, Fannie Mae has developed a comprehensive program, including a portfolio of low down payment options, to meet the needs of today’s prospective home buyers. One aspect of that is the HomePath Ready Buyer™ Program.
Rocket Mortgage® Director of Product Development Justin Herring says this program is a real win for first-time home buyers. “While Fannie Mae hasn’t announced an end date for this program, I would encourage clients to take advantage of this great offer now,” Herring says. “Rates are near historic lows.”
What Is The HomePath Ready Buyer™ Program?
Fannie Mae’s HomePath Ready Buyer™ program offers first-time home buyers the opportunity to get up to 3% of the purchase price back in the form of closing cost assistance on Fannie Mae-owned HomePath properties.
What Is Fannie Mae?
The Federal National Mortgage Association, commonly known as Fannie Mae, is a government-sponsored enterprise with a twofold mission. Fannie Mae was created in 1938, during the Great Depression, to keep mortgage lenders liquid. Fannie does this by buying the mortgages originated by lenders and repackaging them for sale to investors on the secondary mortgage market. Second, Fannie Mae helps low- and moderate-income prospective home buyers afford home ownership by offering incentives and assistance during the mortgage application process.
What Are HomePath Properties?
When borrowers default on their Fannie Mae-backed qualifying mortgages, ownership often reverts to Fannie Mae through a deed in lieu of foreclosure transfer. Borrowers who will never catch up on their mortgage payments sign their homes over to Fannie Mae to avoid having a foreclosure on their credit history. That means Fannie Mae can get these back onto the market quickly. This is significant because foreclosures can take a long time, and the house can sit vacant or worse, suffer damage at the hands of owners who know they will ultimately face eviction.
Other times, they end up back in Fannie Mae’s portfolio if the foreclosure doesn’t sell at auction. It goes back into Fannie Mae’s portfolio to be listed on their site.
How Does The HomePath Ready Buyer™ Program Work?
Fannie Mae offers these homes for sale to the general public through HomePath.com. Suppose you find your next home on the site. What are your next steps?
Contact A Real Estate Agent
You must work with a real estate agent to buy a home from HomePath.com. This is required by Fannie Mae to help make sure home buyers understand exactly what they’re buying when they purchase a real estate owned (REO) home through HomePath.
Complete The HomePath Ready Buyer™ Online Class
The HomePath Ready Buyer™ class is offered online. It should take about 4 – 6 hours to complete. You will have to pay $75 to complete the course, but that fee will be reimbursed if you close on a HomePath home as part of your closing cost assistance. Once you complete the HomePath Ready Buyer™ program, you will print out your Certificate of Completion and give it to your real estate agent. They’ll submit the certificate along with your offer on a HomePath home.
Reap A Valuable Reward At Closing
On closing day, you’ll get a credit of up to 3% of the purchase price toward your closing costs. Suppose you’re buying a home for $200,000. Your credit would be $6,000, including the $75 fee you paid when you signed up for the online class. In addition, your closing costs are generally lower because you won’t be required to have an appraisal completed for the lender’s consideration.
Unfortunately, if your closing cost credit exceeds your actual closing costs, you don’t get any additional credit. But still, that’s a large wad of cash you can leave home on closing day.
What Topics Are Covered In The HomePath Ready Buyer™ Course?
The goal of this course is to prepare first-time home buyers for the responsibilities of home ownership. The nine-module course covers topics like these:
- Whether you’re ready for home ownership
- Determining how much you can afford to spend on your new home
- Understanding credit
- Understanding the mortgage application process
- How to decide which home is right for you.
Who Is Eligible For Closing Cost Assistance?
The assistance Fannie Mae provides can go toward closing costs, points, prepayment of expenses and reimbursement of your buyer’s education course fee. There are a few eligibility requirements:
- You must be a first-time home buyer. If you have a co-buyer, only one of you must complete the course.
- The home must be your primary residence within 60 days of closing.
- Tenants in tenant-occupied properties are eligible to buy homes through the program.
- The home must be a Fannie Mae-owned HomePath property.
How Can I Finance My HomePath Home Purchase?
Fannie Mae backs low down payment mortgages, available through lenders like Rocket Mortgage®. Even if you don't take advantage of the closing cost assistance offered by the HomePath Ready Buyer™ program, these loan options may be used to purchase homes regularly available on the market and those owned by Fannie Mae.
For Lower-Income Home Buyers
For low-income home buyers, there is the HomeReady Mortgage. If you and any other clients on your loan earn up to 80% of your area’s median income, you can get a mortgage with a 3% down payment, regardless of whether you’re a first-time home buyer. You can even get down payment assistance from local sources.
For First-Time Home Buyers
Fannie Mae also offers first-time home buyers a 3% down payment option. Known as the 97% Loan to Value mortgage, or the Fannie Mae 97% LTV Standard loan, it allows first-time home buyers at any income level to apply. And by first-time home buyers, Fannie Mae means anyone who has not lived in a home they owned in the past 3 years.
Advantages Of Buying A HomePath Home
There are lots of great reasons to consider a HomePath home for your first home purchase.
Homes Are Priced To Sell
If a home was originally purchased with a qualifying mortgage, Fannie Mae probably purchased that mortgage from the originating lender. If that owner defaulted, and signed the deed in lieu or the property didn’t sell at auction, Fannie Mae will offer the home for resale. Remember, Fannie Mae is in the business of buying mortgages from lenders, not managing properties. Fortunately, this means that it prices homes at a discount so that they sell quickly.
Low Down Payment
Even better, if you apply for a HomePath Ready Buyer™, HomeReady or a Fannie Mae 97% LTV Standard mortgage for first time buyers to buy a HomePath home, you’ll only be required to make a 3% down payment, with options for first-time and repeat buyers. You can even use the Chenoa Fund, Community Seconds, or local resources for assistance in putting that down payment together.
It’s important to note that Rocket Mortgage® doesn’t fund down payment assistance options that require repayment or a lien to be placed on the property. Other lenders may have different policies.
Renovate With A HomeStyle® Renovation Or HomeStyle® Energy Loan
If you find a HomePath home in need of renovations or energy-efficiency upgrades, you can borrow that money upfront with a HomeStyle Renovation or HomeStyle Energy Loan. These loans are issued at closing on the primary mortgage, and they can be up to 75% of the lesser of the following: 75% of the home’s value after the renovations are completed or 75% of the purchase price with added renovation costs. There’s no second mortgage or home equity line of credit (HELOC), and your payments are wrapped into one monthly payment.
Rocket Mortgage® doesn’t currently offer renovation mortgages.
Cancellable Mortgage Insurance Payments
When you have less than a 20% down payment, you must pay for private mortgage insurance, or PMI, on a conventional loan, or mortgage insurance premiums, or MIPs, on FHA loans. These insurance policies are issued for the lender’s protection should you default on the loan. With any conventional mortgage, including those issued by Fannie Mae, PMI can be cancelled when you reach the 20% equity threshold with a written request and confirmation of property value.
Closing Cost Assistance
As a first-time home buyer, if you complete the HomeReady Home Buying course, available online, you’ll receive a credit of up to 3% of the purchase price toward your closing costs when you purchase a HomePath home. The course costs $75, but that money is returned to you when you close on a HomePath home as part of your closing cost assistance. You complete the course, print out your certificate of completion and give it to your real estate agent to submit along with your offer. It’s that simple.
Disadvantages Of Buying A HomePath Home
There are a couple of disadvantages if you have your heart set on getting a HomePath home. Let’s run through them.
May Require Repairs Or Renovations
When is a bargain not a bargain? When the “bargain” becomes a money pit.
HomePath homes are sold “as-is.” This means that Fannie Mae will not make any repairs to the property, nor will it offer any warranties. That means that it is up to home buyers to make sure that they understand exactly what they are taking on when they purchase a HomePath property.
You will need a thorough home inspection to be sure that you have a handle on what repairs will be required. To protect home buyers from taking on more repairs than they can handle, HomePath requires prospective home buyers to work with an approved real estate agent. The agent is there to ensure that all known problems are fully disclosed and to make sure you understand exactly what you are getting into.
Supply May Be Limited
There’s a decent chance that you may have a hard time finding a HomePath property in your area to buy under this program. The HomePath Ready Buyer™ program was introduced after the last financial recession to help Fannie Mae get a lot of foreclosed homes off their books.
Since then, both financial regulations and an economy that has been in a continuous improvement cycle up until March of this year mean there are a lot less foreclosures available than there used to be. If you want to find a HomePath property that works for you, you may have to expand your search area and/or be really patient.
HomePath Ready Buyer™ May Be Your Path To A New Home
If you are a lower-income or first-time buyer, it’s hard to beat the advantages of participating in the HomePath Ready Buyer™. If you’re ready, get started online.