We get plenty of people asking us questions here and from time to time, we get so many questions about a particular subject, we turn it into a full-blown post because it is popular enough that everyone wants to know about it.
Today’s question comes from a question someone submitted asking about buying a house that “needs a little work” and what kinds of loan options there are:
I am hoping to get an FHA Loan as a first time homebuyer. It is my understanding that if a house needs work, it will not qualify. I do have a house in mind and it does need work (light fixtures, appliances, etc.) Will the 203K loan be an option for me?
FHA 203k Streamline or HomePath Renovation Loan?
The answer to this question is “it depends” – and while the FHA 203k loan may be a great option, you may also be eligible for the new Fannie Mae HomePath renovation loan. They are very similar programs – and while it is close, I personally think that the HomePath renovation loan probably has more advantages over the FHA203k streamline program because of less money down, no appraisal required and no mortgage insurance. Here are just a few of the highlights for the FHA 203k streamline and the Fannie Mae HomePath renovation loan programs:
FHA 203k Streamline Loan Highlights:
The FHA 203k streamline loan has been around for years – but with recent numbers of bank owned properties being bought that need a little work, this loan program has become hot again. Some of the highlights of the FHA 203k streamline loan include:
- It works like a construction loan – you are able to buy a home that wouldn’t qualify for FHA financing and finance the repairs that will bring it up to FHA standards
- The total amount of the loan is the purchase price plus the amount needed for repairs
- FHA has limited the Streamline 203K program to a range between $5,000 and $35,000
- The requirements to qualify are the same as a traditional FHA loan
- The construction phase can’t begin until the loan closes. The funds to pay the contractor come from escrowed funds at the closing
- Up Front Mortgage Insurance Premium and Monthly mortgage insurance are paid to FHA just like a regular FHA loan
- Appraisal required
Fannie Mae HomePath Renovation Loan Highlights:
The newest loan program for homes that “need a little work” is the Fannie Mae HomePath Renovation loan. The HomePath renovation loan is only for homes that are currently owned by Fannie Mae and you will qualify to get the HomePath loan through Fannie Mae as well. Because Fannie Mae currently owns so many homes, this is one way that they are helping people get into homes (they are also offering investors the HomeStyle renovation loan program) when the home may be in need of a few minor repairs. Some of the HomePath renovation loan program highlights include:
- Financing to fund both your purchase and light renovation
- Low down payment and flexible mortgage terms (fixed-rate or adjustable-rate)
- Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit, state or local government, or employer
- No mortgage insurance
With the inventory of homes so high at Fannie Mae, it is no wonder that they came out with this great program. I woudln’t expect it to be around forever – so don’t be surprised if the program goes away once Fannie Mae sells many of the homes it currently owns.
So which loan program is right for your situation? The easy way that I try to explain this is something like this:
- Is the home owned by Fannie Mae? If yes, get a HomePath Renovation loan.
- Is the home owned by someone other than Fannie Mae? Time to look into qualifying for a FHA 203k loan.
More From Arizona Mortgage Team
- FHA 203k Streamline: Contractor Requirements
- Fannie Mae HomePath Mortgage Loan: What Properties Are Eligible?
- Buy a House with Low Down, No PMI, No Appraisal? Yes! Welcome to HomePath.
Arizona Mortgage Team Recommends
- HomePath Renovation Mortgage (203K Mortgage Loans)
- How to Write a FHA 203K Purchase Offer | 203K Loans | HomePath Renovation Mortgages – Georgia, Florida, Alabama, SC (203K Mortgage Loans)
I would like to buy a house which requires home renovation mortgage
with 3% money down.
The house is listed for $ 164,000.but I would make an offer
for $150,000.
My credit score is poor but above 600.
I am making $ 14 per hour.workong in the bank
House needs a new kitchen cabinets and water heater
aprox. $ 10,000.
Is it possible to be aproved foe such a mortgage?
Thanks,
sarah
This is bank own house, not Freddie Mac.
I’m inquiring if you have 203k or homepath loans I need a preapproval right away. Thank you, 248-601-0377
Hi,
I have a 288 sq.ft home that needs extra sq. footage. I have a tenant that would like to purchase the home . please email me or you can call me at 985-788-7632
Thank you
Martha Oliva
HI Steve. Great post on the 203k. The more that professionals like you spread the good word about the 203k, the more it will be utilized. Finding knowledgeable contractors who have been educated on the 203k, was a challenge until the 203k Contractor Directory was created. So, to find the educated and Certified 203k Contractors, just go to http://203kContractors.com.
I am getting a property through the homepath renovation loan.Why am i having to put down 5% instead of the 3% down?
But the HP renovation loan does require a subject to appraisal – That is a Fannie Guideline
Don, the HomePath Renovation loan only requires a 3% down payment. The 5% down payment requirement may be an “investor overlay” which is added restriction specific to that one lender and not coming from Fannie Mae. However on the Home Path program there is a fairly large improvement in the interest rate when you put down 5% vs. 3%. In most cases you are better off, provided you have the extra 2% for the down payment, when you invest a little more on the front end with the 5% down.
Absolutely, spread the word about the best loan products on the market – the 203K and the HomePath Renovation.
As far as the question on the HomePath above I fully agree with David; you don’t want to put 3% unless you HAVE to, the risk based rate adjustment is significant. Go 5% all day