Old Fannie Mae, bitter old biddy that she is, finally opened her arms to more buyers with the Homepath financing program. In economic times as these, Auntie's Fannie's kindnesses must be just the kind of blessing that are going to allow buyers that were previously unqualifiable to enter the real estate market...or is it?
At first glance, Homepath seemingly removes some expensive hurdles for the home buyer:
*3% minimum down payment
*no mortgage insurance required
*no appraisal required
Theoretically, this should reduce the amount of cash needed to get into a home. As an added incentive, Fannie is willing to pay 3.5% in closing costs, as well as offering an agent bonus for loans that close before October 31st of this year. Happy day! Houses for everybody!
There are only a few issues we should discuss before we start handing out keys...
1. A minimum credit score of 660 is needed for 3% down payment for most lenders.
2. Did we mention that you'll have an elevated interest rate, and will have to pay significant discount points to get into the home?
This morning, pricing out a Homepath condo for my buyer, I discovered that the best rate I could offer him today was 5.5%, and for that he had to pay $2,931.38. !!
Make no mistake, Auntie Fannie's kindnesses come with a cost. Remember that the advent of mortgage insurance was to help cover the risk of default for the lender. If you remove that requirement, the lender starts feeling a little vulnerable. In an effort to be charitable, they may let you keep your monthly payment down by not making you pay monthly mortgage insurance, but they will be sure to price it to get some money upfront, on top of extra interest they get from the elevated rate. Auntie Fannie might be old, but she no fool. She wants her money upfront for a favor.
So realtors, beware! Don't talk up this program to your clients without some disclaimers. Homepath is not a Get Out of Jail Free card. It's more like a Get Out of Jail for a Significant Fee card.