Fannie Mae offers financing incentives to buyers ready to live in foreclosed houses

February 19

If you’re planning to shop for a home in the coming few weeks, here’s a an early-spring come-on that might save you some money if you qualify.

Fannie Mae, the largest mortgage investor in the country, has a bulging portfolio of houses acquired through foreclosures. Roughly 31,000 of these properties are listed on its “HomePath” (www.homepath.com) resale marketing site. To move them quickly out of inventory, Fannie temporarily is offering qualified owner-occupant purchasers — but not investors — cash incentives toward closing costs of 3.5 percent of the purchase price. But you have to submit your initial offer no later than March 31 and close by May 31.

What sort of houses are we talking about? Visit the site and you’ll see. They run the gamut — from a one-bedroom condo unit in San Diego to a four-bedroom, four-bath single family home in suburban Montgomery Village, Md. Some states have thousands of HomePath listings online: Florida has nearly 12,000; Illinois, 4,360; Ohio, 2,800; California, more than 2,300; Washington state, nearly 1,800; and Nevada, around 1,400. Asking prices range from $30,000 to $600,000 or more. On a $400,000 house, the 3.5 percent closing-costs incentive would amount to $14,000.

To ensure that buyers who intend to occupy its homes get an opportunity to fully check them out and bid without competition from investment groups offering all-cash deals, Fannie has instituted what a “First Look” program. It essentially prohibits bids from investors during the first 20 days after listing (30 days in Nevada). After that, investors are free to jump in. Each First Look listing includes a countdown clock that indicates the number of days remaining before bidding is opened to all comers.

The 3.5 percent closing-costs offer is available only during active First Look periods from mid-February through March, so there’s not a lot of time to get involved. Bidders will need to indicate upfront that they want to be considered for a closing-costs discount.

Who is eligible? Number one, you’ve got to be a bona fide owner-occupant purchaser and commit to live in the house as a primary residence for at least a year. You’ll need to fill out a certification to that effect, a document that can be found on the HomePath site. Properties are not available in all states.

You don’t have to be a first-time buyer, though the Fannie program is likely to attract substantial numbers of them. The 3.5 percent discount helps with one of the biggest problems faced by first-timers: upfront cash.

As with most home purchases, you’ll need to be able to qualify for mortgage financing. Though Fannie may end up owning or securitizing the loan you obtain, it won’t be financing you directly. On HomePath purchases, you shop for a mortgage just as you would on any other house. Ideally, you nail down a financing source and get prequalified for mortgage money up to a specific dollar limit at current interest rates. If you’ve already located a First Look property and qualify, the lender is likely to take the 3.5 percent closing-costs incentive into consideration in evaluating your application.

While you shop on HomePath, however, keep this important factor in mind: These are foreclosed, previously occupied homes. Though some of them are repaired, painted and spiffed up before they are listed, many could use some additional work. They are sold “as is,” and that’s built into the pricing. Fannie identifies what it calls “improved” properties on the HomePath site — those that have undergone significant repairs — with either the Home Depot logo, when repairs have been made by contractors from that company, or with a hammer-and-roof symbol, when repairs have been completed by independent contractors hired by Fannie.

If you can’t find the First Look house you want, don’t give up. Freddie Mac, the other giant federal mortgage investor, also has thousands of foreclosed homes it’s trying to dispose of — and its own “First Look” program — at its “HomeSteps” (www.homesteps.com) marketing site. Freddie has its own spring incentive promotion: On bids received by April 15, the company is offering $500 that buyers can use to pay condo association dues, flood insurance or home warranty premiums. In addition, Freddie offers mortgage financing options in some areas. If you qualify, that could mean a loan with no mortgage insurance, no appraisal and a 5 percent maximum down payment.

Definitely worth checking out.

Ken Harney’s e-mail address is kenharney@earthlink.net.

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