Guide to HFA Loans | The bank rate


While commonly mistaken for an FHA loan, an HFA loan is a different type of mortgage offered through a partnership between Fannie Mae, Freddie Mac, and Housing Finance Agencies (HFAs). Here are the basics to know.

What is an HFA loan?

HFA loans are designed to make home ownership more affordable for first-time homebuyers or low to moderate income borrowers. With an HFA loan, you could have lower monthly mortgage payments that better fit your budget and receive closing cost and down payment assistance to help pay the initial cost of buying a home.

Overview of discount rates

An HFA loan and an FHA loan may look the same – and have similar characteristics, such as a low down payment – but they are two different types of mortgage loans.

While their exact function and relationship to their state government varies, housing finance agencies support affordable housing initiatives, including helping homebuyers and renters. HFAs generally act as independent organizations, overseen by a board of directors appointed by the state governor. They can be referred to the state housing ‘authority’, the ‘commission’, the ‘society’ or the ‘department’, but essentially serve the same purpose: to meet housing and community development needs. of State.

How HFA Loans Work

Fannie Mae and Freddie Mac, two government-sponsored companies (GSEs) that support much of the mortgage market in the United States, each offer an HFA loan option. At Fannie Mae, this is called the “HFA Preferred” mortgage program. With Freddie Mac, you will meet the “HFA Advantage”.

Fannie Mae and Freddie Mac work with HFAs across the country to offer these loans through a selection of approved mortgage lenders. The HFA itself does not fund them.

The HFA Preferred and HFA Advantage options are conventional fixed rate loans with a minimum down payment of 3%, and can be combined with down payment assistance through an HFA. Down payment assistance may be funded in the form of a second mortgage or forgivable loan, or may be a grant that does not need to be repaid, depending on what your HFA offers .

While these loans are ideal for first-time buyers, they are accessible to borrowers at all stages. If you are a first-time buyer, or if you haven’t owned a home in the past three years, you will need to complete a Homebuyer Training Course to qualify.

If you put less than 20% with an HFA loan, you will also have to pay mortgage insurance. As with other conventional loans, this can be waived when you pay off your mortgage at 80% of the value of your home, but with an HFA loan there are also reduced insurance coverage options – depending on your income. and the loan-to-value ratio – which can help you save money.

In addition to buying a home, HFA loans can also be used for refinancing. The HFA Preferred option allows limited cash refinancing, but the HFA Advantage program does not.

Who is eligible for an HFA loan?

You may be eligible for an HFA loan whether you are a first-time buyer or a regular buyer. However, depending on your state, it may not be available to regular buyers unless the buyer purchases a home in a designated “target area”.

To be eligible, your income must meet the HFA income limits, which are typically set annually and vary from state to state. You will also need to get the loan for your primary residence in which you intend to live, and not for an investment or second home. An HFA Advantage loan can only be used for a single unit property (such as a single family home or condo); an HFA Preferred loan can be for a property with up to four units.

Other eligibility requirements, such as minimum credit score and maximum debt-to-income ratio, are determined by the HFA and the lender the HFA works with. You will therefore need to get in touch with the HFA to find out if you meet them. Fannie Mae and Freddie Mac generally require a credit score of at least 620, so take that as a benchmark.

What are the rates for HFA loans?

HFA loan rates vary depending on the HFA and the lender, but can sometimes be more competitive than market rates for other types of loans. You can compare the rates on HFA loans with the mortgage rates on Bankrate.

How to apply for an HFA loan

  1. Explore the options for your HFA. Each HFA has its own HFA loan requirements and might offer alternative programs and assistance as well. You can find your HFA’s website through Bankrate’s Guide to First-Time Home Buyers Programs by State.
  2. Contact the HFA. According to the HFA, you can either fill out an online form to get in touch for more information or call the agency directly.
  3. Find an approved mortgage lender. HFA loans are only offered through lending partners approved by your HFA. You can find a list of these lenders on your HFA’s website. Compare the reviews and testimonials of lenders to help you narrow down your options. From there, you can go ahead with a pre-approval and application, as well as a homebuyer’s course, if needed. When applying for an HFA loan, be prepared to pass on all of your financial information, including pay stubs and tax returns.

Other low down payment mortgages

Whether you are a first-time buyer or a regular buyer, there are several low down payment mortgage options. Some of the most popular include FHA loans, which require a 3.5% down payment, as well as VA loans and USDA loans, which have no down payment requirement.

Fannie Mae and Freddie Mac also offer HomeReady and Home Possible loans, respectively, as well as the conventional loan 97, all with a down payment requirement of just 3 percent. Depending on your eligibility, these may be viable alternatives to an HFA loan.

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