In case you weren’t aware, Freddie Mac, along with sister Fannie Mae, acquired a ton of real estate as a result of the ongoing mortgage crisis.
And one way Freddie Mac is reducing their inventory of real estate owned (REO) is via their “HomeSteps” program, which is the name of the company’s real estate sales unit.
Sure, they probably don’t want to be in the business of selling real estate, but because they’re a quasi-government agency, they have to do it efficiently and ethically. And that could mean savings for you!
So if you’re in the market to purchase real estate, one avenue you can consider along with the traditional channels is Freddie Mac HomeSteps.
What Is HomeSteps?
- Freddie Mac has lots of homes for sale
- Thanks to the housing crisis and the many foreclosures that came with it
- HomeSteps is the name of the program tasked with unloading all of this REO inventory
Let’s start with some basics about the home buying program offered by Freddie Mac so you know what you’re looking at here.
In short, Freddie Mac has a bunch of single-family homes, townhouses, and condos that they need to sell. Some refer to them as “Freddie Mac homes.” They can be found in cities nationwide, though inventory is pretty light in more popular areas of the country for obvious reasons.
The properties you’ll find via the HomeSteps website were acquired by Freddie Mac as a result of foreclosure or deed-in-lieu of foreclosure, or perhaps a borrower walkaway.
Put simply, the homes were lost or given up by the former owners, and because Freddie Mac was the investor, they wound up with them.
There’s nothing wrong with buying a foreclosed home, but it can be riddled with issues if the former owner didn’t maintain the property, which is often the case.
Fortunately, Freddie Mac is a reputable company that is basically overseen by the government, so you might feel more comfortable buying through them versus a private real estate company, bank, or investor.
However, you’ll still deal with a real estate agent, as you would when buying any other property. The properties found on HomeSteps are assigned listing agents, which can be contacted directly by prospective buyers (or by their own real estate agents).
HomeSteps Good Neighbor Practices
One advantage to HomeSteps is its so-called “HomeSteps Good Neighbor Practices,” which adheres to the following procedures once Freddie Mac acquires a home:
– Home is secured (safety concerns are addressed via random property inspections)
– Trash is removed from both the interior and exterior of the property
– Lawn is properly maintained on an ongoing basis
– Interior and exterior of the property are cleaned
Basically, Freddie Mac ensures the REO properties they sell aren’t covered in graffiti, filled with trash, and surrounded by weeds, like some foreclosed properties very well could be.
And they conduct random property inspections with regional area managers to determine the security of the home, cleanliness, working utilities, and so on. A scorecard is then provided to the listing agent for review.
In other words, buyers of HomeSteps properties get a little added peace of mind in the sometimes scary world of buying previously foreclosed homes.
Along with the upkeep of properties, Freddie Mac offers HomeSteps home buyers a $500 credit toward the purchase of a home warranty of their choice. So if little (or big) things go wrong during the first year, homeowners can ideally get things fixed via their home warranty company.
HomeSteps Offer Process
While real estate agents are involved in the transaction, the home buying process is a little bit different with HomeSteps.
When making an offer, you must include the following items:
- Sales contract
- Mortgage pre-approval letter
- Proof of funds (if it’s a cash sale)
- Earnest money
- HomeSteps addenda (agents will know what paperwork is needed)
Once a complete offer is submitted, they are typically responded to in 48 hours, at which point you might be countered, accepted, or rejected.
And yes, you are able to submit an offer below the listing price, though Freddie Mac claims the properties are listed at fair market prices. So any other competition might stymie your efforts of trying to get a really good deal.
Apparently, multiple bidders isn’t uncommon, and homes do sell above list price. If that happens, you’ll be asked to submit your final and best offer by a specific date. It will then be countered or accepted.
Lastly, note that you must use a real estate agent to purchase a HomeSteps property, and they are not available for rent.
Freddie Mac First Look Initiative
- The First Look Initiative
- Allows owner-occupants to make offers on Freddie Mac homes
- A full 20 days before investors can
- In an effort to stabilize the neighborhoods where the properties are located
If you intend to occupy a HomeSteps property as your primary residence, or are a non-profit, you get an advantage over other buyers, such as investors looking buy the homes and later flip them.
This is known as the “Freddie Mac First Look Initiative,” and provides owner-occupants with a 20-day head start once the property is listed on the MLS.
In Cook County, Illinois, the city of Detroit, and the state of Nevada, you get an even longer 30 days without direct competition from investors.
The goal is to stabilize neighborhoods and provide affordable housing solutions to those who need it, as opposed to investors looking to make a buck and move on.
This makes it easier to land a property without worrying about someone coming in with all cash and snagging your dream home.
For the record, investors can also buy HomeSteps properties once the First Look period ends, and via online auctions and bulk sales. And offers can be submitted to the listing agent immediately, but will only be considered after the 20 days (or 30) are up.
To determine how many days are left in the First Look period, you can check the MLS and/or contact the listing agent. There will also be a First Look icon next to the property on the HomeSteps website and it should be highlighted in the property listing remarks on the MLS.
This provision applies to all HomeSteps properties other than multi-family homes.
HomeSteps Financing Options
Back in the third quarter of 2012, Freddie Mac launched a financing program tied to HomeSteps known as “HomeSteps Financing.”
It offers the following incentives to home buyers:
As you can see, HomeSteps makes the home buying process a little bit easier, with no need for an appraisal (purchase price used for valuation) and no mortgage insurance necessary, despite the high loan-to-value ratio.
That will save home buyers some cash and make the closing process a little less arduous.
So if you’re looking to put less down, you might want to get financing outside HomeSteps, especially now that Fannie Mae and Freddie Mac both offers mortgages with as little as 3% down on all properties.
Where Is HomeSteps Financing Offered?
- Currently available in just 10 states
- Only 3 major mortgage lenders are participating
- But not all HomeSteps properties are eligible for HomeSteps Financing
- Must be a 45-day escrow (or faster)
At the moment, HomeSteps Financing is only available in 10 states, including Alabama, Florida, Georgia, Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Texas and Virginia.
And only three lenders are currently participating in the program, including BB&T Home Mortgage, Nationstar Mortgage (now known as Mr. Cooper), and Regions Bank.
BB&T can be used in the states of AL, FL, GA, KY, NC, SC, TN, TX and VA.
Nationstar aka Mr. Cooper is a participating lender in AL, FL, GA, IL, KY, NC, SC, TN, TX and VA.
Regions is available in AL, FL, GA, IL, KY, NC, SC, TN, TX and VA.
But keep in mind that not all homes listed on homesteps.com are eligible for HomeSteps Financing, so contact the assigned listing broker before making an offer.
Either way, you should shop around the compare lenders, as you would in any other home buying scenario. These lenders may not have the best mortgage rates or the lowest closing costs, even if they’re well-versed in the HomeSteps program.
Note: Closing must occur within a 45-day escrow to be eligible for HomeSteps Financing.