Question from a beginner, Homepath renovation loans?

Question

Any advice for these types of loans? Good or bad experiences? I plan on using this type of loan for my first real-estate purchase.

Jesse Gonzalez · Answer

The rates are not high, very competitive actually and they do carry monthly MI, but it's not bad either.  You're correct on the renovation issue.  More info can be had at the USDA website

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1

Kevin Martin · Answer

Thank you Jeff and Jesse for your comments.

Jeff,

That is why I asked the question because my loan officer told me he has been in the business for over 20 years but is completely new to homepath Reno loans. I definitely don't want to play with fire especially when I can afford putting down 10% as an investor. If so, I am concerned if I go in as an investor Fannie Mae might not like that as much as an Owner Occupant and reject my offer or not even consider it. Any thoughts on this subject?

Jesse,

Ill ask him about putting his commission in an escrow account just in case and let you know what he says. ;) . I have never heard of USDA 100% financing, I would imagine the interest rate is high and there is no renovation cost included in the loan but I have no idea. Where is a good place to get more information on that?

Jesse Gonzalez · Answer

Your loan officer isn't giving you sound advice, if you sign the document and move prior the one year mark you're opening yourself up to damages which you have agreed to in writing.  Ask your loan officer if he/she is willing to place their commission into an escrow account to cover the damages if you get called on it and see what his/her answer is then.  Secondly, USDA allows 100% financing options, have you looked into that?

Jeff Bridges · Answer

Your loan officer might work for a bank or firm, but FNMA is the underwriter for all of these homepath loans and they have pretty specific paperwork which you will sign at closing that states your intent to occupy within 60 days and live in it for at least a year along with the stiff monetary penalties for not adhering to these requirements, same as what you noted. Your loan officer is not looking after your best interests or is uninformed. You can have all of the intellectual discussions you want about spirit of "intent" and extenuating circumstances that might require you to move before that one year has passed, but the bottom line is the banks consider such activities as fraud if you were to use such a loan to live in it for a few months, then plan a flip, or rent it out. There is a reason why they have different down payment requirements and interest rates for investor loans, and for homepath, the requirements are extremely generous for investors compared with normal conventional loans. So if you're not interested in remaining in the place for at least a year, I suggest getting the investor rate for homepath loan instead.

I have a owner occupied homepath loan, and I plan to live in the property for at least a year, at which point I will start looking for my next homepath property and rent out the current one. rinse repeat....

Kevin Martin · Answer

Jeff,

Thank you for your reply. I actually just got pre-approved for a homepath renovation loan this morning. Its has to be a minimum loan of 50k (including the reno) and its only 3% down. I plan on living in it which is why the down payment is only 3% but I also have to sign a document with Fannie Mae saying I will live in it for at least a year or else I have to pay 10k in liquidated damages. This is were it gets weird, I asked my lender (approving me for the homepath reno) if I have to stay in it for a least a year and he said no, I just have to move in it and make it my primary residence.  Did you have to sign the same document? Did you live in it for more than a year?  I would appreciate any feedback on this matter.

Jeff Bridges · Answer

I think the homepath loans are very good for first time investors. I know the homepath investor loan only requires 10% down vs. 20%+ for normal conventional, which is a big plus. also they waive the appraisal and other things to make closing much easier and faster. I used homepath loan for my primary residence and only required 5% down. usually can close in less than 30 days while other loans usually require up to 45 days to close. Not sure if the renovation loan is the same. Only a few lenders deal with this type of loan so you'll need to start looking for lenders. once you find one, the loan could also answer all other questions you have. Wells fargo might be a good shot as they did mine. You will only be able to use this loan on the properties found on homepath.com in case you werent aware. I suggest not taking on a big renovation project for your first property as you'll have big holding costs/ no income and you can get in over your head without experts leading to cost overruns/ time overruns that you might not expect. So I suggest you look for properties in need of minor renovations of under 10k and nothing structural.