Much is still unknown about what the COVID-19 pandemic means long term for the U.S. economy and the mortgage industry. Patterns are beginning to take shape, however. An interesting pair of conflicting facts are coming to light: Mortgage interest rates are holding steady at historically low levels while historically high unemployment could lead to an increase in foreclosures.In the midst of the pandemic, many first-time homebuyers are making the decision to enter the housing market to take advantage of low rates and the ability to move further from work thanks to telecommuting, among other factors. These borrowers may be flocking to markets that could be increasingly flooded with foreclosures. Traditionally, a Federal Housing Administration (FHA) loan has been the product of choice for many first-time homebuyers, mainly due to its low-downpayment and lower minimum FICO-score requirements.
With current market factors at play, first-time homebuyers may benefit more from the array of products and services Fannie Mae has developed: HomeReady Mortgage, HomePath and HomePath Ready Buyer. When used solo or in conjunction, these programs provide unique benefits for first-time buyers, including those considering a foreclosed property.
The HomeReady Mortgage program addresses common financial challenges faced by buyers. Although it is similar to an FHA loan, there are several attributes to this program that provide borrowers an advantage, particularly in the housing market to come. These include:
- A 3% downpayment option
- Acceptance of additional income sources, such as rental payments
- Co-borrower flexibility, enabling individuals who will not reside on the property to be considered for qualification purposes.
The program includes a homeownership education requirement to ensure borrowers are prepared for the responsibilities that come with purchasing and owning a home, although exceptions to this requirement can be made under certain circumstances. Fannie Mae has partnered with Framework — a provider of homeownership education courses — to offer an interactive, online training course. Other options are available as well.
HomePath refers to all Fannie Mae-owned properties and is a real estate owned (REO) platform for foreclosure properties, allowing these homes to be purchased by the general public. Additionally, HomePath properties qualify for expanded interested-party contributions from the seller, the builder or developer, and the real estate agent or broker, among others. These contributions can go as high as 6% for loan-to-value ratios greater than 90%.
REO properties represent a great opportunity for first-time buyers as well as move-up buyers. HomePath also features First Look, which offers owner-occupants an exclusive first look at a selection of newly listed foreclosure properties. The First Look program allows buyers to negotiate and purchase foreclosed properties before they are made available to investors. The First Look period usually covers the first 20 days (30 days in Nevada) that a property is listed on HomePath.com.
The HomePath Ready Buyer program is an option specifically designed for first-time buyers who are purchasing a HomePath property and, if desired, can be combined with a HomeReady Mortgage. Buyers must complete an online homebuyer education program and must reside on the property as their primary home within 60 days of closing.
The borrower must be a first-time homebuyer, which is defined as a buyer who has not owned a home in the past three years. The property must be listed on HomePath.com and be eligible for closing-cost assistance.
If these conditions are met, the homebuyer can qualify to receive up to 3% in closing-cost assistance. Educating your first-time borrowers about the online education requirement is extremely important because the course certification must be presented with the initial offer in order to receive the closing-cost assistance. For borrowers who even think they may be interested in the HomePath Ready Buyer program, it is a good idea to have them take the course before beginning their home search to ensure this requirement has been met.
An abundance of foreclosures is not a scenario that anyone wants to see, but unfortunately, it may be inevitable. All buyers, but especially first-time buyers, need to be aware of every option available to them in their home-purchase journey.
For first-time homebuyers looking to purchase a home in the coming months, these Fannie Mae programs could represent an unexpected but fortuitous opportunity to make their dream of owning a home a reality. Of course, mortgage originators have a critical role to play in presenting these options to first-time buyers. It is not uncommon for originators to specialize in a particular loan program based on where they are located or what types of loans they process on a consistent basis.
An originator who works in a rural area, for example, may be a de facto expert on U.S. Department of Agriculture loans. Another originator, given the frequency that they work with retirement-age or repeat homebuyers, may be able to answer every conceivable question regarding reverse mortgages without even referring to notes.
As the effects of the COVID-19 pandemic on the mortgage industry become more clear, it behooves originators to expand their respective knowledge bases and become more familiar with all loan options available to first-time buyers. This will ensure they are guiding these borrowers to the “best fit” loan program for their individual situation.
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Being well-versed in the details of lesser-known or lesser-used products such as the HomeReady Mortgage, HomePath or HomePath Ready Buyer program not only enables originators to help first-time homebuyers enter the market, but it also enables them to better fulfill their role as a trusted adviser to the home-purchase and financing decision.
After all, first-time homebuyers often approach an originator to learn more about the mortgage process and the options that are available for them. Equipped with the knowledge of these programs that are uniquely suited to the current housing and economic environment, first-time homebuyers could purchase a home much sooner than they expected, all thanks to their trusted originator and adviser. ●