Posted 10/13/2016

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HomeSteps : Freddie Mac Homes At 5% Down & No Mortgage Insurance

Freddie Mac HomeSteps Program

Gina Pogol

The Mortgage Reports Contributor

What is HomeSteps?

HomeSteps is the program through which Freddie Mac, one of the largest mortgage agencies in the U.S., sells its foreclosure properties.

Freddie Mac’s objective is to protect neighborhood home values, and the neighborhoods themselves. It spruces up its foreclosures then puts them back on the market.

This promotes vibrant, populated communities. But how can buyers benefit? By purchasing a home at a discount, with better mortgage terms.

Verify your new rate (Apr 21st, 2018)

HomeSteps Advantages For Buyers

Freddie Mac's program comes with a number of benefits that buyers won't find via a standard foreclosure home purchase.

HomeSteps properties are cleaned and often repaired with new paint, flooring, and appliances. While there is no guarantee that an individual property will be sold at a discount, Freddie Mac says that on average, their homes sell for 95 percent of market value.

Buyers who purchase these homes get a $500 credit for a home warranty. These warranties cover many repair costs for homeowners, removing much of the uncertainty that can comes with a pre-owned house.

HomeSteps Special Financing

HomeSteps currently offers financing for qualified buyers in ten states -- Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas, and Virginia. Freddie Mac says it’s working to expand HomeSteps financing to more areas.

Keep in mind that HomeSteps properties are available in almost every area of the U.S.. It's only the financing that is limited to select states.

The financing offers several advantages, including down payments as low as five percent with no mortgage insurance and no appraisal requirement. Eligible buyers can also purchase HomeSteps properties with other mortgage programs, including FHA and VA home loans.

Freddie Mac’s Home Possible Advantage program is another financing option. This loan requires just three percent down and comes with reduced mortgage insurance.

Verify your new rate (Apr 21st, 2018)

Finding Eligible Homes

HomeSteps properties can be found all over the U.S. Property types include single-family homes, condominiums, townhomes, manufactured homes and rural properties.

The homes are easy to find using Freddie Mac’s search tool, and you can sign up for email updates when property meeting your requirements becomes available.

How To Buy HomeSteps Properties

You buy HomeSteps properties by working with a licensed real estate agent, just like you would with any property.

There is one difference, though. You don't have to compete with investor-buyers within the first 20 days that the home is on the market.

Freddie Mac's First Look Initiative ensures that only non-profits and owner-occupying buyers can submit offers during that initial period. This reduces competition from professional, cash home buyers looking to flip or rent out the property.

After 20 days, investors are allowed to buy these houses.

You make an offer on HomeSteps property the same way you would for most kinds of residences. Normally, it takes about 48 hours to get an acceptance or counter-offer from Freddie Mac. Legal acceptance occurs only when the contract is signed around by all parties, and that can take five to seven days. That's a little longer than the two or three days it takes for a private seller to accept an offer.

If there are multiple bids, all candidates will be given a deadline to submit their best offer. The best bid will be accepted or countered by HomeSteps.

Verify your new rate (Apr 21st, 2018)

Tips From Freddie Mac

To successfully purchase a HomeSteps house, Freddie Mac says it’s important that you be prepared to move quickly. That means working with a reputable agent who knows the area well.

If you’re going to beat out investors, get a pre-approval letter for your mortgage. This is verification from your lender that it has reviewed and approved your loan file. At that point, all you need is a property.

Keep in mind that some first-time buyer mortgage programs, like Home Possible Advantage, require buyers to complete a home buyer education class. You’ll want to take care of that early on.

Finally, just because HomeSteps properties are cleaned up and possibly repaired doesn’t mean they’re perfect. Freddie recommends commissioning a home inspection from a licensed provider.

When you buy a HomeSteps property, you won’t get a foreclosure home covered in graffiti and surrounded by weeds. It will probably be in decent repair. You may get it for less than market value, and you will get a home warranty incentive. HomeSteps financing, where available, comes with a low down payment and no mortgage insurance.

With these benefits, a HomeSteps property might be the best buy in your community.

HomeSteps Q&A

Can I use any loan program to buy a HomeSteps house?

Yes, you can use any conventional loan program including those offered by Fannie Mae and Freddie Mac, or an FHA loan, USDA home loan, or VA mortgage.

Do I have to be a first-time home buyer?

You do not have to be buying your first home to be eligible for a HomeSteps property, or to qualify for the HomeSteps five-percent-down financing.

Do I work directly with Freddie Mac to buy the home?

No. You buy the home just like any other. You make an offer through your real estate agent.

How do I find homes in my area?

Enter a city, state, or zip code into the HomeSteps search tool. There may be no homes available in your area, but keep checking, as additional properties may be added.

Am I getting the typical foreclosure discount?

Not usually. Freddie Mac states that most homes sell for a 5% discount, whereas the typical foreclosure sells at about a 40% discount according to real estate data website RealtyTrac. The benefit of HomeSteps, however, is that you do not have to compete with cash buyers or investors for the first 20 days the property is listed. You also get a home warranty, and potentially, access to special financing. Also, the homes are cleaned up and maintained which reduces repair costs after purchase.

Can I buy the home as a vacation property or rental?

Yes. However, the 20-day First Look period must pass. During this initial time frame, only buyers who plan to live in the property may make an offer. After that, you can buy the home for any purpose, but will be competing with all buyers.

How does HomeSteps financing work?

A select group of participating lenders accept HomeSteps financing applications. The buyer's income, credit, and assets must adhere to standard lending rules. Eligible states are Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas, and Virginia. Buyers are eligible for a 5% downpayment loan with no mortgage insurance. No appraisal is required, which eliminates the risk of loan denial due to property condition. If you don't meet HomeSteps financing criteria, simply use any other mortgage program.

How do I make an offer on a HomeSteps home?

According to Freddie Mac, all offers must include a sales contract, pre-approval letter, earnest money, and HomeSteps-specific sales contract paperwork. Your chosen real estate agent will facilitate all aspects of the offer process.

Do I have to use the agent listed on the HomeSteps property profile?

No. You can use your own real estate agent, who will submit your offer to the HomeSteps agent.

Is HomeSteps the same as the Good Neighbor Next Door program?

No, but it's similar. Good Neighbor Next Door properties were previously financed with FHA loans rather than Freddie Mac. This program  program offers downpayments as low as $100 and homes at a 50% discount to some public workers.

What else should I know about HomeSteps?

HomeSteps is a powerful program that helps communities and home buyers. First-time as well as repeat home buyers should search for homes in their area and make an offer, especially during the home's first 20 days on the market.

What Are Today's Rates?

Mortgage rates are ultra-low, and it could be the perfect time to secure a low payment. The HomeSteps program helps buyers get into a home at a low upfront and monthly cost.

Get a quote for your home purchase, and see how much you can qualify for. No social security number is required to start, and all quotes come with access to your live credit scores.

Verify your new rate (Apr 21st, 2018)

Gina Pogol

The Mortgage Reports Contributor

Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2018 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)