What Is A HomePath Mortgage?

February 16th, 2012 | Home Loan Information

When you’re driving around the neighborhood looking for that perfect home to buy I know your eyes are immediately drawn to every single “For Sale” sign standing! Even if it’s halfway down the block you just passed! I remember those days. I always enjoyed driving around with my wife looking at nothing but potential! Great times indeed! Here’s my question: Did you ever notice a smaller sign at the top the reads something like this:

“HomePath Mortgage – low down payment, flexible mortgage terms, no lender-requested appraisal and no mortgage insurance”.

Here’s why I’m asking. Lately I’ve noticed quite a few Homepath Mortgage signs attached to the “For Sale” signs. The advertising is always positive and promising. I thought it’s time I explain the basics of what a Homepath Mortgage is; and is not.

A Homepath Mortgage approved property means that Fannie Mae owns the loan. Because Fannie Mae owns the loan they are in a position to offer certain incentives to a potential buyer of that property. Some of the incentives are:

• Low down payment and flexible mortgage terms (fixed rate, adjustable rate, or interest only).
• Down payment of at least 3% and can be funded by the borrower’s own savings, a gift, a grant, or a loan from a nonprofit organization, or employer.
• No lender requested appraisal required.
• No mortgage insurance required.
• Expanded seller contributions for closing costs allowed.
• Available for primary residences, second homes and investment properties.
• Many condo project requirements are waived.

These are great benefits for any potential home buyer – Now let’s dig deeper on what this really means. Fannie Mae, although offering these benefits, does not provide financing. (The Federal National Mortgage Association, commonly known as Fannie Mae, was founded in 1938. It’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS), which allows lenders to reinvest their assets into more lending and in effect increase the number of lenders in the mortgage market).

What does this mean? Fannie Mae is merely “allowing” their loan to be purchased in a “less restrictive” manner. Well what does that mean? You still have to get out there and find a lender who is willing to give you a loan within the guidelines Fannie Mae is allowing!

This is about the point that a potential home buyer begins to get stressed. So please, continue reading! I promise I will make it a little easier!

There are many lenders out there who participate in the Homepath Mortgage program. (I happen to be one of them!). That’s not a problem. The problem (or confusion) starts with what many banks call “overlays”. Overlays are nothing more than bank guidelines above and beyond what Fannie Mae has agreed to. The banks position is it’s their money so they can add additional guidelines when warranted to protect their assets.

Assuming you’ve found a lender who participates in the Homepath Mortgage program, you now need to find out what, if any, overlays they have regarding this program. I know certain lenders have certain overlays. I will give you an example or two.

Example: Fannie Mae indicates that you need as little as 3% down. A lender, on the other hand, may require 5% down.

Example: Fannie Mae indicates that you may qualify with poor credit. Each lender may have a different view of what poor credit is. For some, you may need a 640 FICO score while others may require a 660 FICO score. Some may not want to see any late payments on rent or mortgage for 12 months while others may be fine with a 6 month history.

Are you seeing the trend?

Example: The Homepath Mortgage, according to Fannie Mae, does not require mortgage insurance. Lenders may offer (require) a “blended rate”. Technically you do not have mortgage insurance but you may, however, receive a higher interest rate which will help offset the costs should you stop paying the loan – Kind of like mortgage insurance! Remember, the banks need to make sure they are covered as much as possible. It’s not rocket science!

I hope you are starting to see the picture. There is nothing wrong with this program. I just want you to know what to look for. Take full advantage of this program, just know what the rules are!

My parting words: This article was nothing more than an attempt to inform you of some very basics. I would encourage you to visit the Homepath website at http://homepath.com  for additional details.

If you have any questions concerning this program or any other home loan program please feel free to contact me anytime!