Have you tried to get financing for a second home lately? Just lost an investment property because a longtime lending source was unable to find a loan to fit your needs?
Fannie Mae, the biggest provider of mortgage money in the country, is attempting to reduce the size of its inventory of foreclosures, or "real estate owned" properties (REOs), by promoting special financing plans for owner-occupants, second-home owners and investors.
While you may not find the ideal getaway or investment property on the Fannie Mae REO list, you could be pleasantly surprised with the possibilities. Remember, given the economy, some owners who never planned to sell have been forced to surrender their properties.
The HomePath financing program offers 3 percent downpayment options for owner-residents, 10 percent downpayments for second-home buyers, and 15 percent downpayment plans for investors on Fannie Mae REO properties. Participating borrowers usually need a 660 credit score and need to borrow at least $50,000.
The downpayment (at least 3 percent) can be funded by savings, employer, gift, grant, or a loan from a nonprofit organization, state or local government.
According to real estate salespersons, most of the properties are in marketable condition. The program offers an affordable financing solution to purchase with no appraisal requirements and no mortgage insurance.
Eliminating those two components is huge. Accurate and timely appraisals have been a hotly contested topic in the housing industry over the past few years as many neighborhoods have dipped (sometimes yo-yoed) in value. Mortgage insurance, typically required on loans with less than a 20 percent downpayment, can be costly. Not having to pay mortgage insurance would equal an approximate 0.75 percent savings on an interest rate (5.5 percent instead of 6.25 percent).
The HomePath program has no declining-market restriction. Given the declining values in many markets, some conventional mortgages now come with a provision that allows the lender to reduce the loan amount if the home declines in value during a specific time period. The HomePath mortgage is limited only by the size of the original downpayment.
The HomePath program also includes a renovation-mortgage component similar to FHA’s 203(k) loan. Both provide owner-occupants with the cash to purchase and rehabilitate a property all in one loan.
Special financing makes sense, especially now, given the continuing liquidity problems and credit-tightening restrictions making the sale of REO and conventional homes increasingly difficult.
While home prices have begun to stabilize in some areas, most homes certainly are not rising quickly in value. They also are taking longer to sell. Multiple listing service figures that show a drop in new listings must be filtered with the number of would-be sellers not wanting to compete in a slow or flat market.
While many lenders have taken a dim view of investors because of the horror stories of those who simply look for any method to suck the equity out of properties they do not occupy, lenders also realize that investors can play a critical role in getting run-down properties back in marketable condition.
The investor component is reminiscent of Fannie Mae’s Houston operation from 1986-88, when one-third of Fannie Mae’s national REO inventory was situated in the five counties surrounding the nation’s fourth-largest city. The Houston experience, in the sheer volume of localized foreclosures and the severity of the absolute value decline from peak to valley, rivaled the worst financial performance in U.S. history.
During the Houston slump, brought on by a declining oil industry, the resale market for REOs was challenged by a widely held public view that foreclosed homes were surely the result of a building defect or other shortcoming that made them less desirable than a regular (nonforeclosure) residential property.
A special lending and sales team, working with Fannie Mae in Washington, D.C., conceived a plan to brand "Fannie Mae as the Best Housekeeper in Houston," celebrating the like-new condition of restored Fannie Mae-acquired properties.
Perhaps the Houston experience can become a popular solution to reducing inventories and providing needed financing options for all borrowers.