Financing for Foreclosed homes

Buyers looking for a deal on a foreclosed property have good reason to scroll through the thousands of homes listed by Fannie Mae. In addition to low-down-payment financing and priority status for owner-occupants, the government-controlled mortgage giant has begun offering closing-cost assistance to qualified buyers.

Fannie Mae’s substantial inventory of foreclosed homes is marketed through its HomePath program. Some 31,000 properties are currently listed for sale at HomePath.com. Last year, the agency sold nearly 147,000 HomePath properties, according to recently filed financial statements.

The agency gives an edge to buyers looking for a place to live: When new properties come online, investors are barred from submitting offers for 20 days. During this “First Look” period, owner-occupant buyers (and nonprofit groups) get first dibs. (The First Look logo designates listings still within the 20-day window.)

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“First Look eliminates investors coming in with ridiculously low cash offers, and gives buyers time to do their due diligence,” said Bernie Alvey, a foreclosure specialist with Exit Landmark Realty in Waldorf, Md.

Last month Fannie Mae announced additional help for cash-challenged buyers. Those who submit an offer on a First Look property before March 31 receive 3.5 percent of the sales price to put toward closing costs — if they buy in one of the 27 states that are home to about three-quarters of the HomePath inventory.

When it comes to financing a purchase, buyers have the option of applying for a HomePath mortgage. The down-payment requirement is just 5 percent. No mortgage insurance is required, although to some extent, “they kind of build it into the rate” on loans accorded with less than 20 percent down, said John T. Walsh, the president of Total Mortgage Services in Milford, Conn.

The greatest benefit is that there is no lender-requested appraisal, Mr. Walsh said. Many foreclosed properties are in poor condition, and therefore wouldn't qualify for traditional financing requiring an appraisal. “A lot of these properties are not habitable, but in order to get traditional financing, the property has to be habitable,” he said. (HomePath also offers a companion renovation loan.)

A HomePath loan is not required for these properties, but it seems to give buyers an advantage, Mr. Alvey said. “In the real world, a lot of these properties are getting multiple offers, and all things being equal, they’re going to pick the one that has the HomePath over the one that does not.”

Stacey Lange, who specializes in bank-owned properties at Windermere Real Estate in Kirkland, Wash., said that “being a HomePath borrower gives you a leg up.”

HomePath properties are usually priced aggressively, although “every once in a while you’ll see one that is priced too high,” she said. “It ends up sitting and then becomes an investor opportunity.”

Buyers shouldn't expect to win a new listing with a low-ball offer, Mr. Alvey said. “You can get good deals, but it’s when they are ready to drop the price,” he explained. “They set their price and then they’re not going to work with you a whole lot.”

Mr. Alvey also cautions buyers to make sure they know what they’re getting into on a bank-owned property, and to hire a trustworthy home inspector. “The listings don’t necessarily lay it on the line as to all that’s wrong with the property — it’s buyer beware,” he said. “It’s critical that people know these properties are sold as is.”

Freddie Mac has a similar foreclosure sale program called HomeSteps. Its financing program is only available in 10 states, however. lprevost