What is Fannie Mae?
When a home goes through the foreclosure process it is either held by the leinholder (ie a bank or investor) or, when the defaulted loan was backed by Fannie Mae, the leinholder will ‘return’ the home to Fannie Mae in exchange for the ‘backed’ portion of the loan. Basically, it allows leinholders to get out of holding the asset (house). Fannie Mae then processes and sells the home to resolve their investment.
What are the benefits?
The main benefits of Fannie Mae properties are twofold. The first is the fact that in most cases, Fannie Mae will do basic cosmetic updating on the home to bring it to a certain ‘set’ standard. This often means new carpet, paint and basic repairs throughout the home. For a foreclosured home that may have been vacant and neglected for some time, this can be a significant benefit. Second, Fannie Mae offers a loan package called Homepath Financing or Homepath renovation loans that offer as little as 3% down for qualified buyers and can be a HUGE benefit over other loan options. Ask your lender about Homepath and whether you would qualify.
What are the challenges?
Honestly, the majority of the challenge is for the Realtors involved and for patience on the part of the Buyer. There is no true ‘Seller’ that can be reasoned or bargained with and you are at the mercy of a very large process. While they are constantly making improvements, it can take multiple days to get responses on Offers, Amendments and other contract documents. Also, the home is truly purchased ‘as is’. If there are any significant health and safety issues that arise during an inspection, the Buyer has the right to terminate the contract but cannot request that repairs be made or credits given.
Any costs involved?
Most foreclosed homes are vacant and vacant homes can require some additional expenses during the Under Contract period. If the home has been winterized (which is standard, regardless of the season) then a Buyer must pay to have the home Dewinterized, Inspected and then Rewinterized within 72 hours (regardless of season or time of year). Also, Fannie Mae charges a minimal (currently $150) charge to rekey the home prior to Closing. If utilities have been turned off, you may incur charges to get them turned on temporarily.
Bottom Line?
Despite some clever marketing out there, ‘foreclosed’ homes are not a STEAL that is going to make you instant equity. Our Northern Colorado Real Estate market is just too strong and ALL homes are selling at or over market value, regardless of ownership.
If there is a Fannie Mae home that appeals to you, by all means, let’s go take a look and feel free to fall in love with it. We’re here to work through the challenges and make that house a home.