For hopeful homebuyers with lower incomes and little savings for a down payment, becoming a homeowner can seem way out of reach. Fortunately, there are a number of programs available that can make buying a home more affordable. Many states offer this kind of assistance in the form of HFA loans.
If you're hoping to buy a home one day but aren't sure you'll be able to afford it, an HFA loan could help you achieve your goal.
Not to be confused with the popular FHA loan, a housing finance agency mortgage, or HFA loan, is a type of mortgage geared toward first-time and low-to-middle income homebuyers.
These loans are available through housing finance agencies, which are state-affiliated organizations that promote affordable housing for owners and renters in the communities they serve.
The rules around who can get an HFA loan and how to apply for one vary depending on the state you're in. If you want to know the specific guidelines for your state's HFA loan program, visit that agency's website.
You won't apply for an HFA loan directly through the agency that administers the program. Instead, you'll work with an approved mortgage lender.
HFA loans often require borrowers to have good credit scores, typically of 620 or higher. You may also need to take a homebuyer education course.
Depending on the program, you may have to be a first-time homebuyer or be purchasing in a specific area if you're a repeat buyer. Each HFA sets its own income limits for these loans. It may set a single maximum income limit or set limits based on household size or county.
The HFA may also set price limits on the home purchase and require a minimum borrower contribution (often $1,000).
You'll only be able to use an HFA loan for a primary residence. This means you can't use it to buy a second home or investment property.
Homeownership has become prohibitively expensive for many would-be homebuyers in recent years. HFA loans can make both upfront and ongoing costs of owning a home more manageable.
Christensen says that the down payment is the biggest barrier to homeownership for most borrowers. The assistance you get with an HFA loan can remove this barrier and enable you to save your money for other home-related costs.
HFA loans allow low down payments, often requiring a minimum of just 3% down. They also generally offer down payment and closing cost assistance, significantly limiting the amount of your own cash you'll need to bring to closing.
The amount of assistance you'll receive depends on individual program limits. Assistance may come in the form of a grant, which doesn't need to be repaid, or a loan.
HFA loans typically come with lower mortgage rates compared with what you'd pay on a regular mortgage. This will reduce how much you pay each month and over the life of the loan.
You may also pay less for private mortgage insurance with an HFA loan, further lowering your monthly payment.
HFAs also administer mortgage credit certificate programs if the state offers them. MCCs give eligible first-time homebuyers a tax credit for a portion of the interest they pay on their mortgage each year.
If your state has an MCC program that you qualify for, you could get a dollar-for-dollar tax credit for up to $2,000 per year. These don't need to be combined with an HFA loan, but they often can be.
HFAs may offer multiple types of mortgages, including conventional and government-backed loans. But they're different from the standard versions of these loans.
If you have an HFA loan and want to refinance, make sure you understand what will happen with any down payment loans you owe. If you want to refinance into an HFA loan, you'll need to see what, if any, refinance products your state's agency offers.
It depends on your HFA's rules. Some HFA loans are limited to first-time homebuyers, while others may be open to all buyers who meet certain requirements.
Depending on the type of loan you get through your HFA, you may owe mortgage insurance. But your premium may be lower with an HFA loan than with a regular conventional loan.
You can search for your HFA's website online and learn about the programs it offers, who is eligible, and how to apply.
