Homepath and other similar programs have a few things in common. First, they make it pretty cheap (apparently) to buy a home. Plus, they cover many closing costs, and they do not require any appraisal. “Wow, that sounds great!” you might think. Think Again!
Recently I had a client purchase a home, and Homepath was one of the financing options which was ultimately rejected, because they did not qualify. The Homepath rate is higher, but then there is no appraisal cost, and there is a very generous contribution to closing costs. Ultimately they qualified through FHA, which appraised the home — for $50,000 less than the offering price. The lender (knowing the FHA appraisal would stick) chose to lower the price. My clients are very happy, since the FHA rate they got is substantially lower than the Homepath rate might have been, and of course getting the home for $50k less than they expected to pay.
The reason I am posting about this now, is that another client recently asked me to sell some of their investment homes, and I started looking at comparable sales. Most of the comparable sales were for $50-$60 per foot; a few were much cheaper, serious fixer-uppers at $20 a foot and less; and then… and then there were one or two properties which sold for $120-$130 per foot! And they really were not much better — not twice as good! In each instance, the property had been taken back by a lender, and then the lender sold the property. The ones I checked had been financed through the same lender which took back the property, and apparently there was no appraisal. Our government at work (again). Only this time, they are selling properties at twice what they are worth!
Sure, this might eventually help the housing market — in the short term. But in the long term it is a bigger problem; buyers have paid, and lenders have loaned, much more than the properties are worth. Homepath is not a lender, but a program; the lender is still someone like Wells Fargo or B of A. Homepath is an FNMA program, so ultimately it will be you and me, the taxpayers, dealing with another Really Silly government program.
So if you are in the market to buy a home, INSIST on an appraisal, whether the lender requires it or not!