With all the bank-owned homes flooding the current real estate market due to the high foreclosure rates, there are some great buys out there. However, many of them need some work before they can be considered livable. You’ve probably heard that some have even been damaged by the previous homeowners before being vacated during the foreclosure process. Financing can be an issue, but there is help for foreclosure buyers. Fannie Mae has recently released a HomePath renovation mortgage, and HUD has another option for buyers with FHA 203k loans. Let’s look at the differences between the two.
FHA 203k loans
The FHA 203k streamline loan is not new, but due to the number of foreclosures, it has become popular again.
It allows you to buy a home that would not qualify for a FHA loan and finance the repairs in order to bring it up to FHA standards.
The loan total is the purchase price plus the amount needed for repairs.
The Streamline program is limited to between $5,000 and $35,000.
Requirements are the same as a traditional FHA loan.
Construction can’t begin until the loan closes. Funds came from escrowed money at closing.
Mortgage insurance is paid to the FHA just like a regular FHA loan.
An appraisal of the home is required.
Fannie Mae HomePath renovation mortgage
The HomePath renovation loan is only for homes currently owned by Fannie Mae.
The mortgage funds both the purchase price of the home and light renovations.
The loan has a low down payment and flexible terms (either fixed-rate or adjustable-rate).
It requires at least a 3 percent downpayment, which can be funded a number of different ways: a gift, a grant, your own savings, or another loan.
No mortgage insurance is necessary.
The loan allows second homes and investment properties.
So, which is the better loan? They both have great features, but realistically, if the home is owned by Fannie Mae, the HomePath renovation loan is the best way to go.