• Steps to Buying a Fannie Mae Foreclosure Home

    By Brandon Cornett | © 2013 All rights reserved

    Question: "I have heard that first-time home buyers can get a good deal when buying a Fannie Mae foreclosure home. Is this true? And if so, how can I find these homes within the area where I want to buy?"

    Yes, it's possible to get a good deal by purchasing a foreclosure home owned by Fannie Mae. But this kind of opportunity is not limited to first-time buyers. Anyone can pursue this kind of strategy, from the first-timers to the seasoned investors. Here's what you should know about it.

    Fannie Mae Defined

    Fannie Mae is part of the secondary mortgage market. The company's full name is Federal National Mortgage Association (FNMA). In a nutshell, Fannie Mae buys mortgage loans from direct lenders such as Citi and Wells Fargo, and then they securitize (combine) the loans and sell them all over the world.

    By purchasing mortgages, they remove a lot of the risk from the lending industry, which encourages lenders to make more loans to more people. They're also a scandal-rich organization that undermines our long-term economic stability, but that's just my take on things.

    Update: Fannie Mae and Freddie Mac were both seized by the government in the wake of the housing crisis. They are now in conservatorship, which means they are being managed by the government. So taxpayers are now bearing the financial burden of supporting these two organizations.

    The future of Fannie Mae and Freddie Mac is uncertain. As of June 2011, the federal government is working on plans to "phase out" both of them. But for the next few years at least, you can still buy a foreclosure home through the Fannie Mae Homepath website (described below). You just need to do it through a licensed real estate agent.

    Why They Have Foreclosure Homes

    Fannie Mae invests in mortgages by purchasing loans made by direct lenders. So when the homeowner defaults on the loan, Fannie Mae ends up with another foreclosure home on the books -- and that's a bad investment to hang onto. So it's in their financial interest to sell these properties as quickly as possible.

    To accomplish this goal, they often (but not always) price the homes below market value. When you hear somebody say they are buying a Fannie Mae foreclosure home, this is what they're talking about. They are purchasing a home that has been foreclosed upon by this organization, in the hopes of getting the property for less than market value.

    Fannie Mae actually has a website (HomePath.com) where you can shop for these types of homes. You can even apply for financing through the site. According to the "About" page, they are selling foreclosures "in order to minimize the impact on the community." That's all very kind of them, but in reality they are also trying to get those bad investments off their books. It's a survival strategy for them. They are spending money to maintain those properties. They need to sell them to qualified buyers in order to survive.

    How It Differs from a Regular Transaction

    When you buy a house through a traditional real estate transaction, you present your offer to the homeowner. If they accept your offer, you would then go back to your bank for the money (unless you are paying cash for the property).

    But when you buy a Fannie Mae foreclosure home, you present your offer directly to that company. You have to do this through a real estate agent who is licensed in the state where the property is located. If you make the only or best offer for a particular home, and your financing goes through, then you'll probably end up getting the property.

    Lastly, I would point out that there are other ways to buy a foreclosed home. For instance, you could purchase a property that has been repossessed by a private bank. These are referred to as bank-owned foreclosures, and you can sometimes get a good deal on them as well. Learn more here

    This article explains the basics of buying a foreclosed home from the Fannie Mae inventory. If you are seriously considering this path to homeownership, you should continue your research beyond this website. I recommend that you visit the HomePath.com website for starters. There's quite a bit of information there, and it comes straight from the source. Good luck.

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30-year mortgage rates are expected to remain low into the first half of 2013.