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 (EDIT!  Cornerstone Mortgage has recently become a preferred provider of Homepath Renovation Financing!  Call me for details at 314-599-0511 until I post something more specific here), 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.  

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!

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.

When asked how the approval will assist the company and its customers, Jim Dean responded, “It will allow us to retain servicing when we choose to, realize pricing advantages over the competition and become more independent from the larger lenders.” He went on to comment, “This approval solidifies our position as an independent mortgage banker not reliant on any other company to originate, fund and service loans.”

Cornerstone Mortgage, Inc. is a locally owned and operated Mortgage Banking firm with a proven track record in retail mortgage originations. Founded in 1995 by Jim Dean, President/CEO and Angi Stevenson, Senior Vice President, Cornerstone Mortgage has over 35 licensed Loan Officers and 6 locations serving the St. Louis metropolitan area. In 2010, the company originated in excess of $500 million in residential home loans and was ranked the #1 fastest growing mortgage banking firm by the St. Louis Business Journal. Cornerstone Mortgage, Inc. has been accredited by the Better Business Bureau since 1996 and has an A+ rating. 

The idea of the 'low' or 'no money down' loan by itself is not what makes MHDC an attractive option for me and my clients.  I do not believe that anyone should go to closing with $0 in their bank accounts or use MHDC to buy a home when they are not ready.  But by using the funds from MHDC toward your down payment, you will be able to hold onto more money for the expenses you'll incur after closing.

The most common use for MHDC is with FHA financing.  FHA requires a 3.5% down payment.  In the case of a $100,000 house, this comes to $3,500.  The math is a bit tricky, but suffice to say in this case MHDC would cover approximately $2,700 of your total down payment, leaving $800 left over for you to bring at closing.  You should almost always negotiate for your seller to pay your closing costs - if you do not, you could expect to bring an additional $3,000 to $4,000 to closing.  Seller paid closing costs are very common and I think a lot of sellers expect it will come into play during negotiation. 

One of the great things about MHDC, in addition to the money, is that the interest rate is not set by your mortgage banker.  This makes negotiating with the lender specifically about the service they can provide rather than the rates and terms they promise.  MHDC sets its own rates and adjusts every few months based on market trends.  In some cases, the rate is actually lower than the normal FHA rate.

The main conditions for whether you can use MHDC funds are income and credit.  Currently, you need at least a 600 credit score.  Your income must be under certain amounts based on household size.  You can find the current income limits on the main MHDC webpage - just click on the picture to get there.

Bear with me for a moment as I make one last, slightly technical point.  The funds from MHDC are technically in the form of a second mortgage on your new house.  However, it is a 5-year forgivable loan, which means the balance falls away at a rate of 1/60th of the balance for each month you live in the property.  You make no payments on the MHDC funds unless you sell or move within the 5 year period.  There is no interest - ever.  There are some potential tax consequences for your MHDC funds that come into play if you leave the property within 10 years, but you would need to consult your tax advisor for competent commentary on that.

Give me a call for more information on MHDC.  By working with me and Gershman Mortgage, you'll be working with the MHDC experts.  There are some technical details that can make or break your MHDC transaction so it pays to work with a loan offer that has a lot of experience with the program.  You can call me anytime at 314-599-0511 or complete the 'Apply Now' form on this website.

PS - One other good third party source for information on MHDC is at Karen Goodman's Arch City Homes website.  Her article on the subject has some technical information I chose not to cover here.

You should know that the low price of a house that needs work reflects the simple economic principle of supply and demand - with a twist.  On the supply side, there are tons of houses that need everything from ‘a little work’ to ‘a full rehab’.  With a large supply, we also see a large demand.  However, the pool of folks that want to purchase these properties is much larger than the group that can.  Out of the group that can there is an even smaller set that decides to follow through once they’ve examined their options.  If you fall into this last category, you are part of a small group with a huge inventory to choose from.

If you have the cash on hand to purchase a fixer-upper and to do the work needed to spruce the place up, by all means get out there and stimulate our economy.  If you need a mortgage, let’s take a look at your options so you can decide if purchasing a fixer-upper will work for you.

Standard FHA

Both first time and repeat home buyers can take advantage of FHA loans.  The advantages are the low down payment of 3.5% and the looser credit guidelines when compared to conventional financing.  If you are looking to purchase a house that needs work, you need to know up front that FHA has strict standards when it comes to the condition of the house you buy.  I’ve seen FHA appraisers require sellers to scrape peeling paint, fix broken windowpanes and install handrails.  This makes a standard FHA loan not compatible with the house in sub-standard condition.

2810 Michigan: Presently listed at $89,900. Recently renovated in great condition. Would easily qualify for FHA financing.

Conventional Financing

If you were considering FHA but you determine the property you want will not meet FHA guidelines, you will want to check with your lender to see if a conventional loan with 5% down is a viable alternative.  It is fair to say that a conventional appraisal is not ‘nit-picky’ in the way that FHA can be over certain property conditions.  However, this does not mean that anything goes.  In order for a property to be considered suitable for financing, it must be in ‘livable’ condition at closing.  The definition of ‘livable’ is interpreted by the individual appraiser who views the property.  In general, the property must have a useable kitchen, functional bathrooms and working systems including electric and plumbing.  It is important to point out that if the property has had copper pipes stolen, attached light fixtures not in place or holes in the wall that you may require a rehabilitation loan in order to purchase the property.

FHA 203k

In many ways, the 203k cousin to the standard FHA loan looks similar - 3.5% down, looser credit guidelines, etc.  However, the 203k product allows you to purchase a property in rough shape and also finance the necessary repairs.  The closing costs can be double what you would normally pay, given the extra work involved for the bank and title company.  In addition to the cost, the amount of time and energy you will need to put into the process can make taking on a 203k loan quite stressful.  You need to be prepared to select a contractor, specify exactly what work will be done and provide the lender more paperwork than on a normal loan.  Underwriting will take longer, so you should avoid offering the sellers a quick closing.  If you were planning on doing some of the work yourself, the 203k guidelines will not allow it.  All materials and labor associated with the loan must be tied to an approved contractor.

203k loans come in two varieties – “Streamline” and “Full”.  I have had better luck with the streamline program, which is for smaller projects with a total cost under $35,000.  The larger scale, full 203k loans are much more difficult to work with, but if you are prepared for a tough process and the property needs a lot of work, it may be the best option.

1718 Virginia: is listed as a Handyman Special. The price is $129,00. per the marketing remarks the property needs some updating and is being sold as-is.

Homepath Renovation

Some Fannie Mae foreclosures will indicate that they are eligible for Homepath Renovation Financing.  These properties have known condition issues that will prevent nearly anyone from obtaining normal financing.  Locally, I do not know of a bank that can do these loans.  Based on the research I’ve done, you can expect an even tougher process than the FHA 203k.

4044 DeTonty: Presently listed at $79,900. This property is approved for HomePath Renovation Mortgage Financing

The Best Option for “Light” Fixer-Uppers

As I joked earlier, the best way to buy a house that needs work is to pay cash.  It’s unrealistic for most of us, so an option a lot of my clients choose is to simply put less money down than they were planning on.  This will only work for a property that qualifies for either normal FHA or Conventional financing, but it is great if you planned to put 20% down or more.  There are ways to put as little as 5% down and still avoid PMI, so take the path of least resistance if possible.  Without a renovation loan in place, you’ll be able to call the shots and do what you want, when you want with your property.

Finally, I wanted to address one of the most common questions I hear from new clients regarding ‘getting a little extra’ (from the bank or home seller) for minor home improvements.  Five years ago, when I first got started in the mortgage business, we had programs called 110% and 105% loans.  Not only did the borrower not need to put any money down, but they got cash on top at closing.  These were some of the programs that hurt the housing market the most.  Getting a little extra is just not possible anymore because, with very few exceptions, zero money down is a thing of the past.  Lenders these days consider the value of your property to be the lesser of your purchase price or your appraised value, so that tosses out the idea of ‘instant equity’ as well.  The only way to finance repairs is to take specialized loans that, as we’ve seen, require additional fees and some extra work on your part as the borrower.  If you are prepared and ready to learn more about these options and others, please give me a call at 314-599-0511.