Successful investors use a few basic strategies when buying residential real estate. The first is obvious: Buy the property at the right price and terms. The second is to buy the property when the market is appreciating. The third is to buy a property that needs some work; thus, with a little sweat you build equity.
Using all three strategies can maximize returns for the most successful investors. Yet how might the average buyer capture similar success? One potential new opportunity exists in the Fannie Mae "HomePath" program.
Fannie Mae handles thousands of foreclosured properties. Its HomePath program is designed to move these properties more quickly off its books by giving lenders and buyers less stringent finance requirements.
The HomePath Mortgage program offers incentives to lenders and buyers.
Its two lender incentives are:
• Loans can be sold back to Fannie Mae, so lenders aren't holding the loans in their own portfolios.
• The more loans a lender makes, the more fees it generates for originating and servicing the loans.
The HomePath program offers four important buyer incentives for a variety of property types:
• No appraisal is required because values are established by the offered prices.
• Minimal down payments are required -- as little as 3 percent.
• No mortgage insurance is required, which means less up-front cash from buyers and lower monthly payments.
• Credit-score requirements are more flexible, especially good for buyers with less-than-perfect credit.
However, the last three incentives balance buyer quality with adjustments to either the down payment required or the interest rate.
In Strategy 1, buying a property at the right price and terms is easier in situations of oversupply. For example, if you are looking for a retirement home or investment property, a recent check of eligible HomePath properties showed that California had 8,704 houses, Florida 6,971 houses, and Arizona 5,187. The selection in Alaska was minimal in comparison -- only 59 homes showed up in Alaska, of which only 15 were in Anchorage.
Accomplishing Strategy 2 -- judging when a real estate market will start to appreciate again -- varies with locations. The goal is to catch the market just after it begins to make an upward turn, rather than at the absolute bottom. For example, while 5,187 eligible Fannie Mae homes in Arizona sounds excessive, it breaks down to 1,221 in Phoenix, 396 in Tucson and 173 in Scottsdale. Market conditions can be assessed only at the local level, so buyers need to take time to research and seek local professional help.
The HomePath program also helps with Strategy 3, because some properties might need repairs and will qualify for the HomePath Renovation Mortgage. This program lets you buy a house and finance minor repairs, typically determined by a home inspection.
All homes should be inspected, and this is especially true with foreclosures, because Fannie Mae will not know property histories. Because HomePath properties are offered on an "as is" basis and appraisals are not required, a home inspection is one way a buyer can have a better idea of potential problems with the property. The Fannie Mae addendum gives a buyer 10 days to inspect, so be watchful of the contract dates. If the inspection reveals unacceptable defects, a buyer has only two alternatives: 1) renegotiate with Fannie Mae, or 2) find another home.
For more information about eligible HomePath properties go to HomePath.com. Whether you are looking for a new home, a second house or an investment property, explore all your options, do your homework and follow the basics.
Clair and Barbara Ramsey are local associate brokers specializing in residential real estate. Their column appears every month in the Anchorage Daily News. Their e-mail address is email@example.com.
BARBARA AND CLAIR RAMSEY