Fannie Mae to Sell Foreclosed Homes With Subprime Lending Terms

Thought those great low down-payment deals were gone? Think again. If you're willing to buy a home foreclosed by Fannie Mae through the new HomePath program, you may be able to purchase one with as little as 3 percent down. Even better, that 3 percent can be a gift from a family member or other third party, or a loan from a nonprofit, or a state or local government.

Sound a lot like those subprime loans that started this housing mess?

The terms are similar, but the big difference now is that to qualify for those favorable terms in the HomePath program, you must choose one of Fannie Mae's foreclosed homes, and you must buy it "as is."

Here are the terms you can expect:
  • Low down-payment and flexible mortgage terms (fixed-rate, adjustable-rate, or interest-only).
  • You may qualify even if your credit is less than perfect, as low as 660, when most lenders want a minimum of 700.
  • You can qualify as an investor or owner-occupant.
  • Down payment must be at least 3 percent for an owner-occupant, but it must be funded by your own savings or by a gift, a grant or a loan from an employer, a nonprofit organization, or a state or local government. Investors must come up with 10 percent down.
  • No appraisal is required.
  • No mortgage insurance is required, but the terms of the loan may not be as favorable. You need to look at the options with your lender.

To get these very favorable terms, you'll need to buy the home "as is." But if you find the perfect home and it needs some renovation, you'll be able to quality for the HomePath Renovation Mortgage. This type of mortgage will fund both the purchase of the home and some light renovation.

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If you are applying for renovation money, you may need to get an appraisal.

Also, to make it easier for first-time buyers or buyers without much cash to get in on these deals, "seller contributions" will be allowed in amounts as high as 6 percent of the purchase price, which means that your need for down-payment money could be greatly reduced. Maximum loan amounts could be as large as $729,750 in the highest-cost areas, $625,500 in others, and $417,000 in the rest of the U.S.

You can find listings of available homes at the HomePath website. Once you find a home you'd like to see, you'll find a link to an agent who can show you the home. If you want to determine what you can afford before getting started on a home search, contact a HUD counselor who can help you set up a budget and figure out what you can afford.

You may also want to talk with a potential lender and get pre-approved for financing. This may allow you to jump to the top of the pile -- if more than one person puts in a bid for the house -- because the seller knows you can qualify for the loan. It also gives you an idea of what price range you should seek out when looking at potential home purchases. To get a pre-approval letter, a lender will need to gather information about your job, assets, income and debts. Then he or she will determine how much financing you're qualified to receive.

If you want to take advantage of some great foreclosure deals out there, this may be the perfect way to get started.

Lita Epstein has written more than 25 books including "The 250 Questions Everyone Should Ask About Buying Foreclosures."

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