Dear Gina, I could buy a home in my town for less than it would cost to rent. My problem is that I have fair-to-bad credit. Mortgage lenders are really picky, I hear, and I'm kind of afraid to apply for a loan. Are there any bad credit home loan programs for me? - Monica, Reno, Nev.
There are some programs that might be helpful. One of the best is called HomePath. HomePath loans are Fannie Mae programs available to people who want to buy Fannie Mae foreclosure properties. You only need 3 percent down to get one of these homes, and the money can come from your own savings, a gift, a grant from a charity or housing agency, or a loan from a nonprofit organization, state or local government, or employer. In addition, Fannie Mae will pay most or all of your closing costs. You could get into a home with no money out of pocket.
Best of all, this mortgage requires no mortgage insurance! Mortgage insurers often require very high credit scores to insure mortgages with small down payments. Taking them out of the picture saves you money and makes mortgage approval a lot more likely.
HomePath mortgages also require no appraisal, although you may wish to get one to make sure the sales price is fair. They even finance condominiums that may not meet Fannie Mae or FHA guidelines. Because Fannie Mae already owns the properties, it's willing to make a lot of allowances to get them sold.
The home doesn't even need to be your primary residence -- you can buy an investment property with as little as 10 percent down. People who already own at least four properties have to come up with 25 percent down.
To get special HomePath financing, you'll need to work with a Fannie Mae lender approved to fund HomePath loans. Minimum credit score requirements range between 620 and 700, with most lenders coming in at 640 to 660. Your mortgage application can be underwritten electronically and you can get a decision very quickly.
Freddie Mac has a program too, called HomeSteps. However, HomeSteps properties don't come with any special financing provisions.
Don't be shy about contacting lenders and asking about their HomePath mortgage guidelines. You might be able to find a bargain home with a good home loan. Completing the form on this site is a good way to get guidelines and mortgage quotes from several different lenders that specialize in dealing with credit problems.