In this market, agents are quite often asked which is better… An FHA 203k or a Fannie Mae Homepath loan? The following is a reprint from a blog by Justin McHood who works for Academy Mortgage and is based in Chandler, AZ..  June 17, 2011

If you are in the market to buy a home, chances are that you have seen at least one property that is either a short sale or a bank-owned property.

And based on what I have seen, many short sales or properties that are currently owned by the bank are in need of a few repairs before anyone can live in them.

Which is why I get quite a few questions about two of the most popular loan programs designed to help homeowners finance needed repairs on a new home: the FHA 203k loan program and Fannie Mae’s HomePath mortgage program.

So. Which is better, the HomePath mortgage or the FHA 203k loan?

The simple answer to this question is “it depends” and before I give you a simple formula that might help you choose between the two programs, here is a quick review of each loan program.

The FHA 203k or the FHA Limited 203k Loans

The FHA 203k loan program can be grouped into two different types of loans: the FHA Limited 203k loan program and the Standard FHA 203k loan. The FHA 203k Limited is designed to be a repair program that has simpler processes with no HUD consultant required like on the Standard FHA 203k loan. In my experience, the FHA 203k Limited is a more popular option since many of the needed repairs for bank-owned homes can be considered “cosmetic.”  (ie: baths and kitchens)

Highlights of the FHA 203k limited loan include:

• • • It works very similar to a construction loan – it allows you to purchase a home that wouldn’t normally qualify for FHA financing due to repairs being needed.
    • The loan amount is equal to the purchase price of the home plus the amount needed for repairs.
    • FHA 203k limited program allows for repairs ranging from $5,000 to $35,000.
    • Qualifying for FHA 203k loans are the same as regular FHA loans.
    • Repair work cannot begin until loan closes and the money to pay contractors goes into an escrow account set up with the lender.
    • Appraisal required.
    • Currently available for owner-occupied properties only.

The FHA 203k and FHA Limited 203k Loans

When the housing downturn began and Fannie Mae started owning more homes than ever before, one of the things Fannie Mae did to help move the homes to new owners was to design the HomePath mortgage program.

The HomePath mortgage program has two different programs within it – the HomePath loan and the HomePath Renovation loan.

For homes that are in need of repairs, the HomePath Renovation loan is the loan program that is often compared to the FHA 203k loan when weighing options.

HomePath Renovation loan highlights include:

• The property must be currently owned by Fannie Mae
• The loan amount is for both the home and the repairs required for the home
• Repairs can be up to 35% of the as-completed value, but not to exceed $35,000.
• Down payment requirements can be as low as 3%
• Fixed or adjustable rates are available
• No mortgage insurance required
• Investment properties or 2nd homes and investment properties are allowed
• No appraisal required
• Lenders can be difficult to find; not every lender is HomePath approved and many HomePath approved lenders do not offer the HomePath Renovation loans.

HomePath Renovation Loan or FHA 203k Loan?

Here is a simple way to choose the right loan program between the two if you are buying the home as your primary residence:

• Is the home owned by Fannie Mae? If yes, it probably makes the most sense to get a HomePath Renovation loan.
• Is the home owned by someone other than Fannie Mae? If so, then your best option is the FHA 203k loan.

So if you find a home that is in need of a new HVAC system, roof replacement, or kitchen upgrades, call me. I will set you up with a lender who can include those type repairs into your 30-yr mortgage.