Let Fannie or Freddie treat you to belowmarket financing

Fannie Mae and Freddie Mac, two large players in the nation's secondary mortgage market, usually don't loan directly to investors or homebuyers; but they buy mortgages that are made by banks, credit unions, and other mortgage lenders. Sometimes when a loan Fannie or Freddie owns goes bad, Fannie or Freddie requires the originating lender to buy back the mortgage. The lender then adds another foreclosed property to its REO portfolio. But, when lenders follow all of Fannie's or Freddie's underwriting guidelines, Fannie/Freddie cannot demand a mortgage repurchase. Fannie or Freddie takes ownership of the foreclosed properties.

Agent Listings

Rather than use a sealed bid procedure, Fannie/Freddie list their REOs for sale with a real estate agency who then places the REOs into MLS. The agent who handles the foreclosed property inspects it and then figures out how to fix it up to sell quickly at a near market price.

Seldom a Bargain Purchase Price

Because Fannie and Freddie may invest thousands of dollars to put their REOs in good condition, you won't find many bargain-priced buys among their REOs. In fact, only in out-of-the-ordinary circumstances will Fannie and Freddie consider lowball or wheeling-and-dealing types of offers. They even try to price their as-is—no repairs—properties as high as the market will bear.

First-Time Homebuyers—Special Financing

Fannie and Freddie aim to attract credit-qualified homebuyers— especially first-time homebuyers. Rather than use the bargain price appeal, these companies lure buyers with well-presented homes and special financing.

Freddie even permits homebuyers to "customize your Homesteps [the name Freddie gives to its foreclosures] home." Under Its Homesteps REO option, Freddie invites buyers (for a price, of course) to upgrade a property's carpets, padding, appliances, and window blinds. Freddie also sells most of its REOs with 5 percent down, no private mortgage insurance (which typically saves buyers $75 to $150 per month), lower closing costs, and a slightly below market interest rate.

All Properties Sold "As Is"

Even though Fannie and Freddie fix up most of their properties, neither warrants the condition of a property. Unlike HUD or VA, as a Fannie/Freddie buyer, you may submit a contract that includes an inspection contingency. If the property qualifies, you can purchase a home warranty plan just as you might with other properties.

Investors Accepted

Both Fannie and Freddie accept offers from investors and offer special financing for credit-qualified investors that requires a 15 percent down payment, rather than the conventional down payment of 20 to 30 percent for investor-owned properties. Closing costs may come in a little lower, too. Investor interest rates usually sit on the low side of market. Locate Freddie and Fannie properties at www.homesteps.com and www.fanniemae.com/homes. (Note: During the go-go years of the early-to-mid-2000s, many lenders offered investors 90,95, and even 100 percent financing. However, as is nearly always the case, these loans usually came with more fine print, higher costs, and higher interest rates. With the recent steep increase in foreclosures on these easy-money loans—as well as regulatory critique—lenders have tightened underwriting standards. Such high LTV loans will get tougher to find and require stronger borrower profiles than they have in the recent past. Typically, though, when lenders tighten underwriting standards, sellers become more receptive to owner will carry financing.)

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