Quick Guide to Fannie Mae Homepath Financing

If you've looked at foreclosure listings, it is likely you've come across Fannie Mae properties that are eligible for Homepath Financing.  But what is Homepath and what are the benefits?

First off, we need to make a distinction between the standard Homepath Mortgage program and the Homepath Renovation Mortgage.  I have not found any providers for the renovation program, so this discussion will involve just the standard Homepath product (for renovation loans, see my post on the FHA 203k program).  When looking at a listing, you'll need to find verbiage indicating that the property is eligible for the standard program and not just the renovation product.  The renovation product also uses a different graphic seen here.

If you are buying a home with the intention to live there, Homepath offers you the ability to make a small down payment of 3% and NOT pay PMI.  This sounds great, but this is NOT a unique offering.  In fact, you can obtain a normal conventional loan with a 3% down payment and not pay PMI at a lower rate than you can obtain through the Homepath program.  So, what is the advantage of Homepath?

The primary advantage of Homepath is that the loan does NOT require an appraisal.  This might not seem like a big deal at the outset, but keep this in mind - properties in any state of disrepair or with any incomplete elements are often ineligble for financing due to the findings of the appraiser.  If an appaiser notes that light fixtures aren't properly installed or that copper pipes have been removed, their report will cause your loan to be denied.  With Homepath, you can compeletely circumvent the appraisal process and finance a property that might be ineligible otherwise. 

This leads us to the other group that can take advantage of Homepath - real estate investors.  As an investor, you will need to put just 15% down, but you too can take advantage of the appraisal waiver and lack of PMI.  This can put you in a position to compete against the cash buyers that too often are the only ones eligible to purchase properties in a state of disrepair.  

If you are considering purchasing a Homepath eligible property, give me a call to discuss your scenario.  Many lenders either don't offer this program or do not understand how it works.  

Good Article for First Time Buyers

http://realestate.msn.com/july-buying-advice-before-you-shop-line-up-a-loan?GT1=35006#atoolb

FHA 203k Rehab Financing Made as Simple as Possible

Anything worth doing is worth doing right.  After multiple training sessions, seminars and loan reviews I am ready to offer my clients FHA 203k financing with the confidence and backing of Cornerstone Mortgage.  We are ready to position ourselves as the St. Louis area experts on this incredibly useful, widely misunderstood loan program.

If you ask your Realtor or loan officer about the FHA 203k rehab loan, they are likely to indicate that these loans are more trouble than they're worth.  You'll hear horror stories involving mountains of paperwork, funding delays, punitive closing fees and loans that simply don't close.  I was actually one of those loan officers that advised my clients against taking these loans!  But since joining Cornerstone Mortgage, I have seen that with the right preparation and guidance, there is nothing to fear about 203k loans.

The following is the best, most comprehensive explanation of the process from application to closing and beyond.  

Who can benefit from a 203k?  What kind of improvements or repairs can you finance?

As long as you plan to live in the property and you meet the minimum credit, income and down payment guidelines*, you can do any or all of the following:

- Make simple cosmetic improvements.  For example, install new floors, better cabinets or bathroom updates.

- Gut and rework an otherwise hopeless property.

- Finish one of the many '90% done' rehab projects out there - you know, the ones that are perfect, EXCEPT for the lack of a kitchen.

- Replace vanished copper pipes.

- Improve energy efficiency, ventilation, etc.

* The minimum credit score to qualify is just 640.  You will need to put 3.5% down of the purchase price, PLUS the cost of the repairs.  As for income, qualifying for FHA 203k is no different than qualifying for a traditional FHA loan.

How does it work, step-by-step?

1. This should be obvious, but don't find the property before getting pre-approved - ideally with me and Cornerstone Mortgage!

2. Pre-approval in hand, identify a property that needs work or maybe just your own cosmetic touches.

3. Determine what improvements or repairs you would like to make and the approximate cost.  Your lender will generate a rough estimate of the total down payment required based on the acquisition cost plus the cost of improvements.  (This estimate will be improved and made more accurate in Step 6.)  If the scope of your plan involves improvements that cost under $35,000 and does not involve any structural work (i.e. knocking down walls) you can use the FHA 203k Streamline program.  Skip to step 5 if this is the case.  Otherwise, continue on to...

4. List of desired improvements in hand, meet with an FHA 203k consultant selected by your lender at the property.  The 203k consultant is a home inspector that has invested a lot of time and education into their position as a representative for FHA.  Their job is to analyze your list of desired improvements and indicate any others that FHA will require as part of the 203k process.  For example, you might want to update the kitchen with new cabinets and flooring, but the 203k consultant notices that he gutters are in rough shape.  He could require that these are fixed as part of your loan.  Ultimately, the 203k consultant will generate a 'work write-up' that lists all of the work to be completed in the format that the lender needs.

5.  'Work write-up' in hand for the full 203k OR just your list of desired improvements for the Streamline program, you will meet with contractors to bid out the project.  Once you have settled on a contractor, they need to complete their bid for you and submit a set of documentation to your lender.  Your lender must vet the contractor to verify they are licensed, have appropriate experience and are well referenced.  

6.  Your lender will order a special appraisal that not only makes sure you are not paying too much to acquire the property, but also shows a finished 'after improvement' value based on the work to be done after closing. The result of this appraisal will allow your lender to furnish you with a much closer estimate of your bottom line down payment, monthly payment and fees.

7.  Your loan process continues as it normally would at this point, as the underwriter provides their final analysis that you meet the guidelines for approval.

8. You close and take possession of your new home!

9. Your contractor is supplied with funds to complete your project based on a pre-determined schedule of 'draws'. Draws are provided after certain levels of completion are verified by either an appraiser or the 203k consultant.  Once all the work is done, a final draw is provided which completes the process!

Sounds great, but how much does it cost?

I provide a 203k loan at the same interest rate as a traditional FHA loan.  As of today (6/29/2011) this rate is 4.25%.  You do pay additional closing fees equal to approximately 1% of your loan amount plus another $400 to $1,000 depending on the scope of your project.  Keep in mind that FHA allows your seller to contribute 6% to YOUR closing costs.  If you are planning to use the 203k program, negotiate accordingly!

Final Thoughts

This is a hugely beneficial loan program, especially given the number of foreclosed and distressed properties out there right now.  There is simply no better way to finance necessary repairs or wanted improvements.  Contact me today to get started!

Get Real-Approved, not Pre-Approved

Smart prospective home buyers know to get pre-approved BEFORE shopping for a home.  Many will speak to a lender for a few minutes, part with some personal information about their finances and receive their pre-approval right away.  Now, there is nothing wrong with this process.  In fact, I provide pre-approvals to new clients all the time!  However, while smart buyers get pre-approved, smarter buyers will take it to the next level and pursue a full approval before writing their first offer.  This is what I like to call a "Real-Approval".

Since joining Cornerstone Mortgage, many of my clients have taken my advice and received a letter that makes their purchase offer shine.  Instead of a letter that is subject to formal verifications of any number of variables, they obtain a letter that states quite plainly:

"Congratulations!  Your loan application in the amount of $XXX,XXX has been approved."

This means that they can focus on finding the right house, rather than simultaneously getting various ducks in a row for their loan.  

Another advantage is that a buyer with one of my "Real-Approvals" can negotiate aggressively with sellers. Buyers can prove they will close - and have the ability to close FAST.

You might think that I've just come up with a gimmicky name for something any lender can do, but you're wrong.  The vast majority of lending institutions around will only formally underwrite files for approval that already have live sales contracts in place.  This is one of the reasons you hear so many horror stories from friends and relatives that have purchased (or attempted to purchase) homes recently.  

Given the complexity of today's lending environment, if you are looking to purchase a home, please call me to obtain your "Real-Approval" today!

Zillow Mortgage Marketplace Benefits Smart Consumers

I have quoted on the Zillow Mortgage Marketplace for over a year now and I wanted to share a brief observation.

The best thing about finding your loan provider on Zillow is the feedback system.  You can learn everything you need to know as a consumer from, not only the star rating, but also the content of the feedback.  Someone who earns 5 stars, but does not compel their clients to write a paragraph about the experience could have simply followed through on the loan that was promised - this should be EXPECTED.  When you see a loan officer that generates detailed feedback, you know folks were not just satisfied, but IMPRESSED with the level of service provided.

On a related note, sometimes the lowest quote lenders don't have the best feedback.  It is important to weed out mortgage providers that act as the dollar stores of the mortgage industry.  When choosing a product or service simply on the basis of cost, buyer beware.  Low is good, of course, but don't make a determination for your mortgage provider on one factor alone.