Fannie Mae HomePath Renovation or FHA 203(k) Loan?

With the recently released Fannie Mae HomePath renovation mortgage, I have seen plenty of people ask the question:

"Which is better, the HomePath renovation mortgage or the FHA 203(k) loan?"

Because there are quite a few houses that are owned by banks, many of these properties need a little work done before they can be lived in. Surely, you have seen the stories of what some homeowners have done to properties before they vacated them in the foreclosure process.

FHA 203(k) Streamline or HomePath Renovation Loan?

The answer to this question is "it depends" -- and while the FHA 203(k) loan may be a great option, you may also be eligible for the new Fannie Mae HomePath renovation loan. They are very similar programs -- and while it is close, I personally think that the HomePath renovation loan may have more advantages over the FHA 203(k) streamline program because it require less money down, no appraisal, and no mortgage insurance. Here are just a few of the highlights for the FHA 203(k) Streamline and the Fannie Mae HomePath renovation loan programs.

FHA 203(k) Streamline Loan Highlights:

The FHA 203(k) Streamline loan has been around for years -- but with recent numbers of bank owned properties being bought that need a little work, this loan program has become hot again. Some of the highlights of the FHA 203(k) Streamline loan include:

• It works like a construction loan -- you are able to buy a home that wouldn't qualify for FHA financing and finance the repairs that will bring it up to FHA standards
• The total amount of the loan is the purchase price plus the amount needed for repairs
• FHA has limited the Streamline 203(k) program to a range between $5,000 and $35,000
• The requirements to qualify are the same as a traditional FHA loan
• The construction phase can't begin until the loan closes. The funds to pay the contractor come from escrowed funds at the closing
• Up front mortgage insurance premiums and monthly mortgage insurance are paid to FHA just like a regular FHA loan
• Appraisal required

Fannie Mae HomePath Renovation Loan Highlights:

The newest loan program for homes that "need a little work" is the Fannie Mae HomePath renovation loan. The HomePath renovation loan is only for homes that are currently owned by Fannie Mae. Because Fannie Mae currently owns so many homes, this is one way that they are helping people get into homes whether it be a primary residence, a second home or even an investment property. Some of the HomePath renovation loan program highlights include:

• Financing to fund both your purchase and light renovation
• Low down payment and flexible mortgage terms (fixed-rate or adjustable-rate)
• Down payment (at least 3 percent) can be funded by your own savings; a gift; a grant; or a loan from a nonprofit, state or local government, or employer
• No mortgage insurance
• Second homes and investment properties are allowed

With the inventory of homes so high at Fannie Mae, it is no wonder that they came out with this great program. I wouldn't expect it to be around forever -- so don't be surprised if the program goes away once Fannie Mae sells many of the homes it currently owns.

So Which Loan Program Is Better?

When people ask me which loan program is better, I usually answer it something like this:

• 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? Time to look into qualifying for a FHA 203(k) loan.

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