FHA or HomePath, Choosing Wisely
The enticing HomePath loan program is unique and easy to structure. If you are buying a foreclosure that Fannie Mae owns then this loan program is most likely offered. It is easier to arrange since appraisals are not required and mortgage insurance is omitted from the monthly payment.
They are easier, but they have some caveats. Most buyers who have student loans may encounter some issues at underwriting. For example, FHA allows an entry of $0 for any student loan debt that is deferred for 12 months or more. This can make or break a real estate transaction as student loans are calculated as full payments, regardless of deferment, utilizing HomePath.
If you are buying in a condo complex, you may want to do the research to ensure that the condo is approved by FHA. It’s good to have an alternative plan if something goes awry using HomePath or any other program for that matter.
Although it seems like a large obstacle is sidestepped by not having to order an appraisal, keep in mind that it serves as a way to protect oneself. How do you know if you are getting a good deal? Perhaps, you are paying more than what it’s worth? Most Realtors should recommend ordering an appraisal, if for anything at all, to ensure that the buyer’s finances are protected as much as possible.
When utilizing the FHA, expect a lower rate than what is offered on HomePath loans. Since the mortgage insurance is not assessed, buyers are paying up to a full point higher in their interest rates, using HomePath. Trying to figure out a break-even as to whether you should accept a higher rate in lieu of paying mortgage insurance? It will depend on how much time you plan to live in the home, loan amount, etc. For the sake of your do-it-at-home calculations, FHA’s mortgage insurance can be canceled when the loan amount reaches 78% of the home’s value and the borrower has paid the premium for at least five years.
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