Homepath 10% Down Investor Purchase No-Brainer!

[Mitch Dowler]

I have long had 4 financed properties so I have been paying 25% down plus closing costs for each new investment. I takes time for me to scrape together that kind of money for my buy and hold investment style. When I heard the recent BP podcast on Homepath I ecstatic. I had also done quite a bit of investing out of state due to price point and cash flow but now with Homepath properties right here in Washington state surrounding Joint Base Lewis McChord now make sense. Crunching the numbers I can realize strong positive cash flow and a 16% ROI.

I am retired Army and have great success keeping my properties in this area rented to both military and civilians. I have turned properties within a week and good tenants literally line up around here with good marketing and a quality unit. Once I have 10 financed properties Homepath is still a great tool to move up to 20 Fannie Mae financed properties by putting 25% or 30% down.

This is a big help in building my portfolio and helping to replace my earned income for a real retirement. I think about it this way, for every new investment property I acquire under my criteria that is one more day per month for the rest of my life that I don't have to work!

[Albert Bui]

Originally posted by @Richard F.:

@Mitch Dowler with Homepath loans when you only put down 10%, do you have to pay PMI? I have some Homepaths but put down 20-25%

Yes there is PMI. You can pay it monthly which is the most typical or you can pay it as a single premium which can be as much as 3.25 points at closing. This amount can be an upfront cost in cash or you can absorb this cost through electing a higher rate which is considered lender paid MI.

LPMI or lender paid MI can be done through a higher rate but sometimes there is not enough yield spread or rebate "money," available in your rate sheet to even absorb this entire cost through the rate you select. In this case you'll then have to pay the difference with cash along with down payment and all the other closing costs/prepaids/etc.

Just to buy a 10% down property that is non owner financed single family residence (not even counting the MI) its already 4.25 points adjustment meaning at today's rate of 4.625% 30 year fixed it would cost you 4.25 pts + closing and prepaid tax/insurance/interest.

To absorb some of the cost you could elect for a 5.125% which has 2.5% points in rebate so that would lower your cost from 4.25% pts to 1.75% pts up front. Your pricing at 5.125% 30 year fixed would then be quoted at 1.75 pts today. This also assumes 740 + fico score.

So the glitz and the glamour of the program is not as rosy as most people think, yes its still good but one should consider pro's and the con's closely.

The pro's are high leverage and no appraisal but cons are a premium in rate you'll end up paying (.125 to .25% in rate) plus lots of points for non owner and higher loan to value such as 90% LTV or 10% down. No Appraisal could be a con for some people because I've seen unscrupulous agents try to sell over valued property to unsuspecting new homeowners on the premise that this property didn't require an appraisal and that that was a bonus! What was not mentioned was that the additional sales price the buyer was paying.

Long story short I recommended the buyer go to standard conventional and the appraisal came in at 25,000 below and the seller(Fannie Mae) after back and forth negotiations agreed to reduce their price. End of the day the buyer ended up saving 25,000 dollars for the same property and the listing agent was peeved that I convinced the buyer to utilize standard conventional 95% LTV financing with no MMI (lender paid). This was back in June 2012 so times are different for sure.

So before you jump on the hype I would recommend to get all the information.

None of the above is to constitute pricing for your particular scenario but rather to explain how pricing scenarios work utilizing the Home Path Program.