Most buyers who I work with and who ask this question, just automatically assume that the HomePath Mortgage must be the best route for anyone and everyone. David's simplified explanation should help buyers to weigh the difference between the two.
Often I am asked which is a better loan for a homebuyer, A HomePath Mortgage or a FHA Loan? It is actually not a clean cut answer for everyone. So I wanted to take the time to go over the benefits of each. And what you need to think about when making a decision between a HomePath or FHA mortgage. Keep in mind this is only in regards to buying a Fannie Mae Foreclosure.
The HomePath Mortgage Program is a GREAT program if you are looking to only purchase a Fannie Mae foreclosure. The benefits are:
- No mortgage insurance- this allows you to buy more home and/or have a lower mortgage payment. To offset the lack of mortgage insurance the interest rate will be much higher than FHA loans
- No Appraisal- this saves the buyer the cost of an appraisal($400+). More importantly it allows the buyer to buy a home that may need some minor work/repairs. Fannie Mae wants to sell these homes and by not requiring an appraisal it allows the home to get financed without having to fix any issues
- Down Payment is as little 3%
- Seller contribution is allowed to go up to 6%, or 9% with a 25% down payment
- Real Estate Investors qualify for just a 15% DOWN PAYMENT, this is great since investment property loans now require a 20-25% down payment.
Please keep in mind you must qualify for a conventional loan to qualify for a HomePath mortgage and have a minimum fico of 660 for the lower down payment options and min 620 score for 20%+ down payment. Most MLS listings mention if the home qualifies for the HomePath program, but if you would like to check to see if a property qualifies you can go to www.homepath.com.
The mortgage rate on a FHA loans are generally lower than market rates, while down payment requirements are lower than for conventional loans.
Some of the other benefits of FHA financing:
- Only a 3.5% down payment is required.
- Closing costs can be paid by the seller. Up to 6%
- More flexible underwriting criteria than HomePath loans, such as allowing lower credit scores, allows high debt to income ratios, etc
Only compare these two options if you plan on buying a Fannie Mae Foreclosure. The HomePath loan is great if the home needs repairs or work, since there is no appraisal needed. And without an appraisal the lender will not know or be concerned with the condition of the home. While a FHA loan would obviously require some repairs to be done, if they are major, etc. And now let’s compare them directly to each other. If you are buying a home of $250k and are putting a down payment of 5%, a HomePath Mortgage would give you a lower payment by $70. This example is using an interest rate of 3.75%(30 year) on a FHA loan and 4.875%(30 year) on a HomePath loan.
Everyone’s needs and financial goals are different, so before making a decision for yourself contact a knowledgeable mortgage professional. And ask that Lender for mortgage estimates for both loans. And if you live in Texas, contact Dave Your Mortgage Guy. This is just another great example of it being in your best interest to know all your mortgage options!!
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