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Program aids investors, but downsides exist

Where are so many Charlotte buyers turning right now for assistance with home purchases? Well, if you aren’t already familiar with the HomePath program, you may want to give it a look. Along with many other investors, I am always on the lookout for great financing options. I’ve focused my attention on this excellent Fannie Mae program.

For those who qualify, homebuyers can attain financing up to 97 percent loan to value while investors can take advantage of financing up to 90 percent LTV, which, as we all know, has been hard to come by the past few years using conventional lenders.

Additionally, no appraisal is required. This translates into less overall closing costs and helps bypass the usual requirement for private mortgage insurance, which traditionally has been the standard requirement for loans with less than a 20 percent down payment. Besides these advantages, there is also a “renovation mortgage” product available from certain lenders that would allow for some light renovation to the property.

Many of the properties listed are below their tax values – some a lot more – and it wouldn’t be hard to locate them in almost any neighborhood across Charlotte.

So now, you must be wondering, what’s the downside?

To begin with, for both homeowners and investors, expect a higher interest rate than your typical 30-year mortgage rate. The majority of lenders I spoke with mentioned that rates will average about one-half to three-quarters of a point higher than the average going rate, including some with even higher rates because of the lack of mortgage insurance.

Furthermore, for investors, the 10 percent may only apply if they own fewer than four properties, factoring in the subject property they are looking to purchase within the total count. For investors who own five to 10 properties, expect to pay 15 percent or more.

In addition, the rate of 10 percent may only apply to single-family homes, whereas two- to four-unit properties will command a larger down payment.  Keep in mind that these factors are fully dependent on the lender that participates in the program. I can vouch for this firsthand after speaking with more than 10 different North Carolina lenders that were listed through HomePath.  Remember, each lender may have different down payment requirements, may or may not participate in the renovation mortgage option and each will carry varying interest rates for the program.

You will be able to find the participating lenders directly from HomePath’s website under its financing section.  Should you decide to use HomePath’s program, I would encourage you to contact as many of the lenders as possible in order to find information and details that work best for your own particular situation.

What are some other things you should know? For potential homebuyers, Fannie Mae offers a “first look” option. This is typically a 15-day period that applies to certain properties that are listed on HomePath. For potential investors, the downside is that no offers can be made on the property until this period expires.

For investors who own four or more properties, some lenders may also require the investor to show six months of reserves for each individual financed property. This of course does not apply to properties owned outright. Lenders typically will also require a minimum credit score in order to qualify for a loan, though this is no different a scenario than what a typical borrower would find at any lending institution outside of the program. This score may vary based on the lender.

Aside from the downsides listed above, with more and more REO properties coming on the market everyday and with a wave of more foreclosures expected, there may never be a better time to take advantage of a program such as this. After all, leverage is one of the greatest — if not the greatest — advantage of investing in real estate, and it is precisely how this program creates that advantage that is widely available to both homebuyers and investors alike.

Discover more information regarding the program as well as the properties available directly from Fannie Mae’s website at www.homepath.com.

Once there, you can locate the lenders listed throughout North Carolina that are currently participating in the program.  Remember to keep in mind that the 2011 guidelines are subject to change at any time, so be sure to get the latest information only from their website or directly from Fannie Mae.

Wishing you the best of luck in your real estate endeavors!

Rory Cummins is a Charlotte landlord and real estate investor and the operator of charlotterealestateloop.com.

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