Fannie Mae Guidelines: HomePath Property Loans

What Are HomePath Properties

HomePath properties are homes that Fannie Mae previously owned and sold through their real estate owned (REO) program. These are typically foreclosed properties that Fannie Mae took back, renovated if needed, and then sold to the public.

When you buy a HomePath property, Fannie Mae allows certain exceptions to their standard lending rules. These exceptions make it easier to finance these properties and can save you money at closing.

The key benefit is higher seller concessions. On a regular home purchase with an LTV above 90%, you can only get 3% in seller concessions. But on a HomePath property, that limit jumps to 6%.

Higher Seller Concessions for High-LTV Loans

The biggest advantage of buying a HomePath property is the increased seller concession limit. If you're putting down less than 10% (meaning your loan-to-value ratio is above 90%), you can receive up to 6% of the purchase price in seller concessions.

Say you're buying a $300,000 HomePath property with 5% down. Your loan amount would be $285,000, giving you an LTV of 95%. Normally, you could only get $9,000 in seller concessions (3% of $300,000). But with a HomePath property, you can get up to $18,000 in concessions (6% of $300,000).

These concessions can cover closing costs, prepaid items, discount points, or other allowable expenses. The extra 3% can make a significant difference in your out-of-pocket costs at closing.

All other rules about interested party contributions still apply. The seller concessions must be for legitimate closing costs and cannot exceed the actual amount of those costs.

Required Documentation and Special Codes

Your lender must verify that the property is actually a HomePath property and document this in your loan file. Even though Desktop Underwriter (DU) might identify the property as HomePath, your lender still needs to confirm that Fannie Mae was the seller.

When your lender delivers the loan to Fannie Mae, they must use Special Feature Code 679 if they're using the higher seller concession exception. This code tells Fannie Mae that the loan qualifies for the HomePath exceptions.

If your loan only uses the resale restriction exception (explained below), the special feature code isn't required. But most HomePath purchases will use the seller concession exception.

Appraisal Credit Benefit

Fannie Mae provides a $500 loan-level price adjustment credit for HomePath purchases that meet specific requirements. Your lender receives this credit but must pass the entire amount to you to help cover appraisal costs.

To qualify for this credit, your loan must be a purchase transaction for a principal residence underwritten through Desktop Underwriter. Your lender must obtain a full appraisal and confirm that Fannie Mae was the seller of the property.

The lender must use Special Feature Code 871 when delivering the loan to claim this credit. This is separate from the SFC 679 used for the seller concession exception.

Resale Restrictions Are Allowed

Some HomePath properties come with resale restrictions that Fannie Mae imposed when they sold the property. These might include requirements to hold the property for a certain period or restrictions on who you can sell to.

Normally, Fannie Mae doesn't allow loans on properties with resale restrictions. But for HomePath properties, they make an exception. These restrictions don't disqualify the property from Fannie Mae financing.

The restrictions vary by property and were put in place to help stabilize neighborhoods or ensure affordable housing goals. Your real estate agent and attorney should review any restrictions before you make an offer.

Why Fannie Mae Offers These Exceptions

Fannie Mae created these exceptions to help move their REO inventory and support neighborhood stabilization. Foreclosed properties can drag down property values in a neighborhood, so getting them back into the hands of owner-occupants benefits everyone.

The higher seller concessions help buyers who might not otherwise qualify for the loan or afford the closing costs. This is particularly important for first-time buyers or those with limited savings.

The appraisal credit reduces the upfront costs for buyers, making homeownership more accessible. Since Fannie Mae already knows these properties well from their ownership period, they're willing to subsidize part of the appraisal cost.

Common Issues and Complications

Desktop Underwriter might not always recognize a property as HomePath, even when it is. Your lender needs to manually verify the seller's identity and apply the exceptions when appropriate. Don't assume DU will catch everything.

The seller concession exception only applies to principal residences. If you're buying a HomePath property as an investment or second home, you're limited to the standard concession amounts based on your occupancy type and LTV.

Some buyers get confused about which special feature codes apply to their loan. The SFC 679 is for the seller concession exception, while SFC 871 is for the appraisal credit. Your loan might need both codes if you're using both benefits.

Make sure your purchase contract clearly states that the seller is Fannie Mae. If there's any ambiguity about the seller's identity, it could complicate the loan approval and delivery process.

The $500 appraisal credit must be passed through to you in full. Some lenders might try to keep part of this credit, but Fannie Mae requires the entire amount to go toward your appraisal costs.

References

For the official guidelines, see B5-4.2-03: Loans Secured by HomePath Properties in the Fannie Mae Selling Guide.