You’ve probably heard of FHA* loans — a government-backed mortgage often used by first-time homebuyers. But what about HFA loans, also known as Housing Finance Agency loans?
Though they sound similar (and both are mortgage loans), the two aren’t the same.
HFA loans are offered through state housing finance agencies or authorities in partnership with mortgage lenders. They’re designed for homebuyers who have low to moderate incomes and can provide down payment and/or closing cost assistance to help make homeownership affordable.
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Because HFA loans are offered through state housing agencies, their availability — as well as their exact features and eligibility requirements — can vary quite a bit.
You can typically find HFA loans available in your region by connecting with your state housing agency, commission, authority, or department. A local mortgage lender can also point you in the right direction.
HFA loans are technically offered through a mortgage lender that has partnered with the state agency. They can include conventional loans as well as government-backed mortgages (FHA, VA, and USDA loans).
Down payment requirements on HFA loans vary based on loan type. Down payment assistance can be used to meet the minimum required investment so that your down payment is 0%. The interest rates are usually fixed interest rates, meaning your rate will remain consistent for the entire loan term. A fixed rate can make it easier to budget for your housing payments.
Key features of HFA loans (specifics vary by program)
- Minimum down payment 0-5%
- Fixed interest rates for the entire loan term
- Can often be combined with down payment and/or closing cost assistance
- Possibility for reduced private mortgage insurance premiums (PMI), which may be canceled when you have 20% equity
- Can be used to buy or refinance a home
- Available to both first-time homebuyers and repeat homeowners
- May require a homebuyer education course
The types of loans and assistance programs available vary based on where you live.
One state might offer up to $15,000 in down payment assistance via a second, forgivable loan, while another provides funds in the form of a grant.
Others may offer assistance in the form of a 0% interest second loan that you don’t pay on until you sell or refinance the home or when you pay off your mortgage.
Some states may require you to live in the home for a certain period of time to receive the full down payment benefit. For instance, the housing agency might offer a 0% interest second loan that is forgiven over time — meaning you don’t have to repay it — as long as you live in the home for the agreed-upon period. That period depends on the program guidelines. If you move earlier than expected, you may have to repay all or part of the loan.
The bottom line: There are a lot of different programs out there, all with their own guidelines and requirements.
To be eligible for an HFA loan, you’ll need to meet the income requirements. Again, HFA home loans are for low- and moderate-income borrowers, and your local housing finance agency can tell you the income limits for your area. Typically, income limits are set based on a percentage of the area median income (AMI).
The exact eligibility requirements for an HFA loan will depend on the programs available in your area, but generally speaking, you can expect to need:
- Minimum down payment 0-5%
- A debt-to-income ratio (DTI) of 45% or less
- Low- to moderate-income for your area
- To complete a homebuyer education course if you’re a first-time homebuyer
Some HFA programs have a first-time homebuyer requirement, which means you have never owned a home or you haven’t owned one in at least three years. Other HFA loans are available to repeat homeowners.
To learn more about HFA loans in your area, see our state-by-state guide below.
The following list includes housing finance agencies in each state, and it can be a starting point for finding HFA loans in your area.
But don’t stop there. Google “housing finance agency,” “housing finance authority,” “homebuyer assistance,” and “community development housing programs,” in your city or town as well.
Some cities or regions within a state have their own housing authorities that may offer homebuyer assistance and affordable loan programs.
It’s important to know all of your loan options so you can choose the one that’s most affordable and best suited to your situation.
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Conventional HFA loans are Fannie Mae and Freddie Mac loan products, offered by mortgage lenders in partnership with state housing finance agencies. Fannie Mae HFA loans are called “HFA Preferred” mortgages, while Freddie Mac offers the “HFA Advantage.”
The two are very similar, but there are a couple of differences. For one, HFA Preferred loans can be used to buy multifamily properties (up to four units), as long as you live in one of the units as your primary residence.
HFA Advantage loans are limited to single-family properties, condos, manufactured homes, and Planned Unit Developments.
There are other subtle differences, so check with your lender to see which one will suit your situation better.
Given their similar monikers, it’s easy to confuse HFA loans with FHA loans. Both can make homeownership affordable to first-time and repeat homebuyers. A key difference is that FHA loans are backed by the the Federal Housing Administration, while conventional HFA Preferred loans are backed by Fannie Mae and conventional HFA Advantage loans are backed by Freddie Mac.
You can qualify for an FHA loan through your state HFA program. Other government-backed loans, including VA and USDA loans, are also options through state HFAs. The specific requirements and guidelines, including down payment, income limits, mortgage insurance, and credit score minimums, vary based on loan type.
HFAs can also set their own program requirements.
HFA loan FAQs
HFA refers to a housing finance agency. These are state-run departments that oversee affordable housing initiatives and homebuyer assistance programs. Many of these agencies offer mortgage loans and assistance for low- and moderate-income residents who want to become homeowners.
The exact requirements vary by housing agency and location. You’ll typically need to have a low or moderate income, purchase a primary residence (as opposed to a second home or investment property), and have at least a 0-5% down payment (though you may qualify for down payment assistance). Some programs have a first-time homebuyer requirement as well, which typically means you’ve never owned a home or you haven’t owned one in at least three years.
This is Freddie Mac’s HFA loan option. Freddie Mac sets the standards for the loan program, while individual HFAs determine eligibility and issue the mortgages. This program is similar to Fannie Mae’s HFA Preferred program, except that it can only be used to buy a single-family home, condo, manufactured home, or Planned Unit Development. No 2-4 unit homes are allowed. Additionally, the HFA Advantage may not be used for cash-out refinances.
HFA Preferred is Fannie Mae’s HFA loan product. Though it’s similar to the HFA Advantage loan offered by Freddie Mac, it has an additional feature: it allows you to purchase 2-4 unit multifamily properties as long as you live in one of the units. HFA loan programs can also include government-backed mortgages as well, including FHA, VA, and USDA loans.
State HFA loans are just one of the many mortgage products that can make buying a home more affordable. If you’re considering buying a house, make sure to talk to a local mortgage lender as soon as possible. They can help you locate affordable loan programs in your area.
*Fairway is not affiliated with any government agencies. These materials are not from the VA, HUD, FHA, USDA, or RD, and were not approved by a government agency.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.