Comparing Low Down Payment Mortgage Programs

Young Couple With New HouseHome buyers have so many options today for selecting a mortgage today. We have several mortgage programs designed to help people buy a home who want to use less down payment. Many of these programs do not require the borrower to be a first time home buyer. Home buyers should compare all possible options before making a decision on what program is best suited for their personal financial scenario.

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Fannie Mae HomePath offering 3.5% towards closing costs!

mortgageporterraiseFannie Mae HomePath has announced they will offer up to 3.5% towards the buyers closing cost through March 31, 2014. Fannie Mae HomePath properties are homes that Fannie Mae owns through foreclosure. Fannie Mae offers special financing on these homes with reduced down payment, no mortgage insurance and no appraisal required. You can learn more about the Fannie Mae HomePath Mortgage by clicking here.

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Fannie Mae HomePath for Conforming High Balance Mortgages

Earlier this week, a real estate agent emailed me this question regarding Fannie Mae HomePath mortgages:

I have a client looking at a HomePath home in King County.  It’s listed at $470,000 and she wants to put down 5%.  Is that possible?  I had the impression that HomePath still has to conform to standards on loans and the limit would be 417,000.

Here’s my reply:

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Three different 3 Percent Down Conventional Loan Programs

UPDATE February 21, 2014: Conventional financing currently has increased the minimum down payment to 5% from 3% unless you are considering the Home Advantage Mortgage Program. Mortgage programs and guidelines change constantly so please check with your local mortgage professional regarding what is currently available for you. 

I’m pricing out a scenario for a first time home buyer who’s looking at buying a home priced at $250,000 and they have roughly 3% set aside for down payment plus closing cost. Since they have excellent credit, they are leaning towards conventional financing instead of FHA, which has much more expensive mortgage insurance (upfront and monthly).

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What is the Difference Between Fannie Mae Homepath and Freddie Mac Homesteps? [UPDATED]

Fannie Mae and Freddie Mac both offer special incentives to entice buyers to properties they have foreclosed on. Fannie Mae’s program is called Homepath and Freddie Mac’s is Homesteps. Although the names some similar, their incentives are VERY different. What Fannie Mae Homepath and Freddie Mac Homesteps do have in common is that the properties are generally in better shape than other distressed homes. 

Fannie Mae’s Homepath program is only available for homes identified on their website www.homepath.com.  As of the publishing of the post, the Fannie’s Homepath site reports their are 126 homes listed in the greater Seattle area alone.

The Homepath program is actually a conventional Fannie Mae program that offers special guidelines, including:

  • expanded loan to values: as low as 3% down payment for owner occupied and 10% down for investment property.
  • no appraisal required.
  • no private mortgage insurance with credit scores of 660 or higher.
  • condos are easier to finance than typical conventional (less requirements).
  • competitive rates
  • conventional Fannie Mae financing. NOTE: you can do other types of financing with a Homepath property, however you will not receive the above listed benefits.

Click here for a rate quote for a Fannie Mae Homepath mortgage on homes located anywhere in Washington.

Freddie Mac’s Homesteps offering is not a special mortgage program. It’s essentially a seller concession on homes owned by Freddie Mac. Homesteps properties are located at www.homesteps.com. Currently there are about 14 homes in Seattle that qualify for Freddie Mac’s Homesteps. 

Current features include:

  • program works with any type of financing, including FHA, conventional, VA and USDA. 
  • $500 allowance to be used towards purchasing a home warranty program (conditions apply)
  • home buyers who are going to occupy (live in) the property qualify to have the first dibs on the home with “First Look Initiative” 

Freddie Mac is in the process of testing a mortgage program in other cities. Their program looks very similar to Fannie Mae’s Homepath and hopefully it’s available in Washington State soon. Freddie Mac offers 3% in closing cost credit if the buyer takes a two part class from Freddie Mac BUT the workshops for these classes are currently not in Washington state.

Click here for a rate quote for programs that work with Freddie Mac Homesteps (FHA, conventional, VA and USDA) on homes in Washington.If you’re considering buying a home located any where in Washington, where I’m licensed to originate mortgages, I am happy to help you!

NOTE: This is an updated post from February last year. Mortgage programs and guidelines change constantly.

Search for foreclosed homes on Zillow

Zillow has added a “foreclosure center” where you can search for foreclosed homes in your neighborhood. The search includes bank owned homes (REO) and pre-foreclosures (a home that is getting to auction).  

Here’s a snap shot of what Zillow is showing as current foreclosures in West Seattle. The red houses are foreclosures and the blue houses are pre-foreclosures.

Zillow Foreclosure Search
Zillow Foreclosure Search

Home buyers searching for a bargain with a foreclosures or short sale need to be extra patient. These transactions tend to take a lot longer to close as you’re dealing with transactions that will require the approval of the lenders(s) who have interest in the property.  

If you’re considering buying a distressed home, you might want to check out the Fannie Mae Homepath program. Fannie Mae offers special mortgage terms if you buy one of their foreclosed homes specifically designated in the program. Fannie Mae Homepath mortgage allows as little as 10% down payment for investment property with no private mortgage insurance and no appraisal. Those buying a home to occupy can use as little as 3% down, no pmi and no appraisal. Often times, Fannie Mae has made improvements to Homepath properties so they’re in better condition than competing distressed homes.

Freddie Mac offers some incentives to buy their REO’s and I’m told they’re working on creating a program similar to Fannie Mae’s Homepath. At this time, if you’re buying a Freddie Mac foreclosures (Freddie Mac Homesteps), a buyer can use conventional, VA or FHA for financing.

If you are interested in buying a home in greater Seattle or anywhere in Washington, I’m happy to help you. Click one of the links above to apply for a mortgage or get a free rate quote.

What’s the difference between Fannie Mae Homepath and Freddie Mac Homesteps?

EDITORS NOTE: Mortgage programs and guidelines often change… you can find an updated version of this post here.

Fannie Mae and Freddie Mac both offer special incentives to entice buyers to properties they have foreclosed on. Fannie Mae’s program is called Homepath and Freddie Mac’s is Homesteps. Although the names some similar, their incentives are VERY different.

Fannie Mae’s Homepath program is only available for homes identified on their website www.homepath.com.  As of the publishing of the post, the Fannie’s Homepath site reports their are 175 homes listed in the greater Seattle area alone. The Homepath program is actually a conventional Fannie Mae program that offers special guidelines, including:

  • expanded loan to values: as low as 3% down payment for owner occupied and 10% down for investment property.
  • no appraisal required.
  • no private mortgage insurance with credit scores of 660 or higher.
  • condos are easier to finance than typical conventional (less requirements).
  • competitive rates
  • conventional Fannie Mae financing. NOTE: you can do other types of financing with a Homepath property, however you will not receive the above listed benefits.

Click here for a rate quote for a Fannie Mae Homepath mortgage on homes located anywhere in Washington.

Freddie Mac’s Homesteps offering is not a special mortgage program. It’s essentially a seller concession on homes owned by Freddie Mac. Homesteps properties are located at www.homesteps.com. Currently*  there are about 48 homes in Seattle that qualify for Freddie Mac’s Homesteps.  Incentives include:

  • program works with any type of financing, including FHA, conventional, VA and USDA. 
  • 3% contribution towards actual buyers closing cost.
  • 2 year home warranty
  • discount on appliances available with the Smart Buy Program
  • owner occupied only

Click here for a rate quote for programs that work with Freddie Mac Homesteps (FHA, conventional, VA and USDA) on homes in Washington.If you’re considering buying a home located any where in Washington, where I’m licensed to originate mortgages, I am happy to help you!

*NOTE: incentives offered on this post were as of February 11, 2012 and have changed. 

Buying a $500,000 Seattle Home with 10% Down

I was recently contacted by a home buyer in Seattle who wanted to know what mortgage programs we have available for a sales price of $500,000 with a 10% down payment. With less than 20% down, the loan will probably have mortgage insurance unless they can find a Fannie Mae Homepath property.

Let’s review some scenarios assuming the home buyers have excellent credit (scores over 740) and a 30 day closing with a loan amount of $450,000.  With a 10% down payment, the seller can pay up to 3% (Freddie Mac) or 6% (Fannie Mae) with a conforming high balance mortgage. Rates quotes are effective as of 5:00 pm on January 24, 2012. For your personal rate quote for your home located anywhere in Washington, click here.

Conventional 30 Year Fixed with Private Mortgage Insurance.

4.375% with a PIMI (principal, interest and private mortgage insurance) payment of $2543.03 and with closing cost of $3074 (apr 4.858).

4.125% has a PIMI of $2477.17 and will cost more in discount points with closing cost of $7988 (apr 4.686).

4.500% has a PIMI of $2422.58. The payment is lower due to the lower pmi rate since a portion of it is paid for “up front’ as a “split premium” similar to FHA except at a much reduced cost. Net closing cost, after lender credit applied with rebate pricing is estimated at $5063, including the upfront pmi (apr 4.856).

For the above scenarios, it will take about 7 years for the private mortgage insurance to drop off of the mortgage payments, at which time, the home owner will benefit from having a reduced payment. When considering a second mortgage piggy back scenario, you may want to estimate how long you will have the second mortgage and what the cost will be over the life of the loan compared to private mortgage insurance.

Fannie Mae Homepath will require the buyers find a Fannie Mae REO property that is eligible for financing utilizing a Homepath mortgage. I just checked Homepath.com and found the most expensive home currently listed in Seattle is $449,000 (which you can actually purchase with as little as 3% down payment). Homepath Mortgages do not require an appraisal nor do they have private mortgage insurance. For the comparison purposes, the following quote is based on a $500,000 sales price with 10% down payment using Fannie Mae Homepath:

5.125% for a 30 year fixed with a principal and interest payment of $2450.19 and closing cost estimated at $2762 (apr 5.187).

FHA is an option for these buyers however I would only recommend it IF:

  • buyers are considering allowing their mortgage to be assumed in the future;
  • buyers are converting existing home into a rental since FHA requires less reserves than conventional financing;
  • credit scores are lower

Here is how an FHA high balance loan would compare based on today’s pricing:

3.750% for a 30 year fixed with a PIMI of $2513.91 with $2782.50 for closing cost assuming the upfront MIP is financed (apr 4.397).  

I am seeing sellers very open to paying for closing cost. I’m also hearing from my clients in the Seattle area that homes that are new on the market and not short sales have been moving fairly quickly.

If I can provide you with a rate quote or help you prepare for buying a home anywhere in Washington, please contact me.