Battle of the Home Mortgage Products: FHA vs. Fannie Mae HomePath
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Recently I have had several inquiries about a number of special loan programs available. The latest, attractive looking product in the market is the Fannie Mae HomePath loan. Depending on your individual needs, this product could be the right fit. However, compared to FHA, the HomePath loan does have some drawbacks.
Here is a comparison of the two loan products:
FHA:
- Down payment requirement: 3.5% down payment minimum.
- Requires financed upfront mortgage insurance premiums and monthly mortgage insurance premiums.
- FHA appraisal conditions required.
- No declining market conditions.
- Interest rates are extremely competitive.
- Minimum 620 credit scores with most investors.
- Primary residences only, no 2nd homes or investors.
- Financing available to FHA county loan limits.
- Eligible properties: FHA approved condos, single family homes, planned unit developments and manufactured housing.
- Seller concessions: 6% toward buyers closing costs and prepaid expenses.
Fannie Mae HomePath:
- Down payment requirement: 3% minimum on primary residences and 10% down minimum on 2nd homes and investment properties.
- Does not require any mortgage insurance premiums.
- No appraisal required, home must be Fannie Mae owned.
- No declining market conditions.
- Interest rates are less competitive.
- Pricing of the loan is less competitive.
- Minimum 660 credit score requirements.
- Primary residences, 2nd home or investors are eligible.
- Financing available to conforming loan limits.
- Eligible properties: Fannie Mae approved condos, single family homes, planned unit developments.
- Seller concessions: 6% for primary residences, 6% for 2nd homes and 2% for investors.
As illustrated, both of these loan products have benefits and drawbacks. For a typical homeowner planning to buy a home for their primary residence, FHA is by far a superior product allowing lower costs of the loan and payments. However, if you are looking for a great investment loan alternative, the HomePath product is an excellent fit.
The HomePath loan has much more flexibility with certain options, but could be challenging given the higher interest rates, cost of loans and minimum credit score requirements. These factors all depend on your specific financial needs.
If you have specific questions and need further advice, please feel free to call or email me. Every situation can be different.
Leave a Comment
August 28, 2009 at 11:25 am
This is good information. My question is what would be an average interest rate for the Homepath mortgage? You had mentioned that it was higher.
Thanks,
Kris
August 28, 2009 at 12:15 pm
Kris,
When I checked and compared it to FHA it was between 1.00% to 1.25% higher on the rate plus the closing costs were at least 1% higher.
November 7, 2009 at 4:43 pm
Is the homepath renovation program available to investors? I was looking at homepath.com and it looks like only the regular homepath mortgage (without renovations)is available. I would like to purchase a second home, but the home I’m interested in shows only the logo for the renovation program and states only owner occupied.
November 9, 2009 at 9:57 am
Chrissy,
The homepath program is available for investors. It however is not a renovation loan program, they will not pay for renovations to be financed into the home. The down payment requirement for an investor is 10% down and they waive the mortgage insurance requirement. Also, if the home is being purchased as a 2nd home, it also requires 10% down.
November 13, 2009 at 7:36 pm
Hello,
I have a question about the 6% seller concessions for HomePath properties.
We are preparing to make an offer on a Fannie Mae property that is HomePath eligible. This will be our primary residence and we are first time homebuyers.
Neither our buyer’s agent or loan officer is familiar with the program and both were surprised when I told them that I had read on various websites that I could request up to 6% toward closing costs.
Is this fairly standard as a request? Does Fannie Mae usually agree to these? Does it depend on the property value/price? I’ve heard the $5000 amount thrown around and am wondering if that is the maximum amount? The offer I plan to make is $200,000 and the property needs no real work, so it won’t be a renovation loan.
Thanks for any clarification you can provide!
Sincerely,
Kelly
November 14, 2009 at 8:14 am
Kelly,
Let me try to help with any clarification I can give.
Both the Fannie Mae Home Path program and FHA both allow a seller to contribute 6% toward the buyers closing costs and pre-paid expenses. Depending on your market you can ask for closing costs to be negotiated into the offer in your contract. So in your case, since the purchase price is $200,000.00 you could ask for up to $12,000.00 for closing costs. Remember both the Fannie Mae Home Path program and FHA will allow this with their financing. Also, please note by my example in the post, that most of the time FHA will be the cheaper option for the home buyer if it is your primary residence. This is because the home path rate is not as competitive as FHA rates. You also asked further if asking for closing costs to be paid by seller/bank is a standard request. That really just depends on the situation. In our real estate market here in Phoenix it is very common for buyers to ask for closing costs to be paid for by the seller, but this can vary from market to market. Also, it also depends on other factors such as how long this home has been on the market and is the seller getting mutiple offers on the property. I have always found that a buyer can always ask, the worst thing is the seller rejects your offer. I would lean on your real estate agent for advice on this.
If you have further questions, I will be available today at (480) 251-0002 for questions.
January 16, 2010 at 1:11 am
Hi,
My question is, can I buy a Fannie Mae property with FHA loan? I am interesting ina Fannie Mae property, however I am approved for a FHA loan. I am confused about it.
In advance, Thank you for your time and your help.
January 16, 2010 at 10:26 am
Mia,
You can use FHA financing on a Fannie Mae property. Some of the Fannie Mae properties are also set up through Fannie Mae to use Homepath financing. Either one is acceptable.
Thank you again for your comment.
February 25, 2010 at 9:34 am
Hello,
We are first time buyers that have special circumstances. We only have enough for 3.5% for down. We are approved and are in the process of purchacing a Fannie Mae HomePath home. We are useing a NSP fund program that is giving us enough money in a 5 yr forgivable second to come up with an amount around 30% down (with our 3.5% added). We have a credit score of 811. So credit is not an issue. We would like to get the best deal. My loan officer is pushing the FHA, but Im not so sure the HomePath would’nt be better. We are limited on options due to a lot of loans not likeing forgivable silent seconds. If we are going to have all this $ in the home after 5 yrs (when the second -NSP money- forgives itself) we are going to have to refinance to get the 2nd insurance removed. We are thinking that if we refinance then we will owe all that $, and we will loose the great low rates we will have locked in. We are planning this home to be a ten year, and would like to not have to deal with anything like refinancing durring that time. What do you think? Is it still worth it to do the FHA? I’m affrid doing the FHA will cause us to loose money having to refinance in 5 years. Please help. We are in a position to bennifit our family greatly and I don’t want to mess it up.
February 25, 2010 at 1:36 pm
Kimberly,
Normally I can answer someones question pretty straight forward, but in your case, it is hard to advise you on the best decision when I do not know really any of your specifics. Also it is common for silent 2nd mortgages to have issues with the 1st mortgage financed. If your current lender is trustworthy and not trying to steer you wrong, then I would take his advice. But again each borrower’s situation is very unique. I do want to make it clear that you do want to take advantage of the low rates. Who knows if 5 year or 10 years interest rates will ever be this cheap.