Monday, May 2, 2011

FHA vs HomePath, which is better?

There are many similarities and differences between FHA and HomePath.  It is important to keep in mind some important points about both programs.

The Differences.

HomePath Financing is only for Fannie Mae foreclosed homes.  FHA financing is for any home.

Mortgage Insurance

FHA loans have both upfront mortgage insurance and monthly mortgage insurance.  This adds about 1% to the loan amount and for every $100,000 you borrow it adds $95.83 a month to the principal and interest payment.  

HomePath loans have no mortgage insurance. 

Interest rates 

Because HomePath has no mortgage insurance, Fannie Mae charges higher interest rates.  The less you put down the higher the interest rate.  FHA rates are the same regardless of how much you put as a down payment.  So the more you have/want to put as a down payment the better you are with HomePath vs. FHA.


FHA loans require an appraisal.  This can frequently cause problems since FHA loans require the property to be in good condition prior to close.  For this reason Fannie Mae and other sellers will frequently not accept FHA loan financing or it will be considered behind HomePath financing in terms of desirability.


HomePath loans require a 660 middle credit score or higher

FHA loans require 640 middle credit score or higher (Loans over $150,000 can go down to 580 credit score)

Debt ratios

HomePath loans have more strict guidelines on debt ratios.  FHA will allow you to qualify for a higher purchase price than HomePath.

The Similarities
HomePath loans require a minimum down of 3%

FHA loans require 3.5%

So which loan is better, FHA or HomePath???

Both loans are great, and either will make you happy.

However, HomePath loans will give you a lower overall payment even though interest rates are higher than FHA.  This is because FHA loans have very expensive mortgage insurance and HomePath loans don’t.  However, not all properties qualify for HomePath financing.  Plus you may need the greater flexibility of FHA debt ratios and credit scores.

To determine which loan is best for you,  we will analyze your overall situation and recommend the loan that best fits your needs.