Homepath homes are foreclosed government "Fannie Mae" homes and are a great way to purchase a home. They offer 3% down loans with NO PMI (PMI is an insurance that is usually put on homes when the buyer puts less than 20% down. This insurance covers the LENDER in the case the buyer defaults on their loan. It is paid for by you, usually with your mortgage payment.
Some other information regarding Fannie Mae (Homepath) homes:
If you wish to put 3%-20% down, you must have a 660 or greater credit score. If you wish to put more than 20% down, standard guidelines may allow a lower credit score.
Buyers can purchase a Homepath home as primary residence, OR as Second Home OR an Investment (rental) home.
There are, with some REOs (foreclosures), a special period of time that the purchasers are limited to "Owner Occupied" offers only. If, within that period, no acceptable offers are made, the owner occupied requirement is then 'released', and investors may then make offers on the property. Perhaps it was within this period that your roommate's dad was told he was not able to purchase the property as a rental.
Another option is to use an FHA loan. I have worked with several buyers that had their parents purchase the property, as owner occupied, and their children move into the home. This was ok as FHA considers children as extension of the parents....
Please feel free to email or phone Redwood Realty for answers to any other Real Estate questions you may have. We would be happy to help you with your search for property!
All answers on this forum are considered reliable, but not guaranteed (real estate law & options are constantly changing!)
Let me know if you have more HomePath or lending related questions!
good luck to you, Jeff M