PHFA Mortgage: How does it work?

PHFA graphicYour mortgage is NOT originated by the Pennsylvania Housing Finance Agency. PHFA employs authorized mortgage lenders to handle loan applications on its behalf. Banks and certain mortgage brokers are the most common.
These lenders will qualify you based on the PHFA and mortgage standards, and your application will be handled in the same manner as any other mortgage.
In most instances, the lender will forward your application, sales contract, and other documents to the Pennsylvania Housing Finance Agency for review.

When you are accepted, you will proceed to closing and then make your monthly mortgage payment to PHFA.

As stated earlier, only approved lenders can provide you with a PHFA loan. But . . . all lenders are NOT approved for all mortgage programs.

Here's what I mean. When you make a mortgage application to the lender, your mortgage may be either an FHA, VA (veteran's mortgage), conventional, or USDA.

But, not all approved lenders are licensed or approved with PHFA to process all of these mortgages.

For example, let's say there are three banks in the mall and all three banks are approved by PHFA, however, Bank A may only be approved by PHFA for conventional mortgages (more on that later).

Still confused? Here's a quick recap

  1. Only PHFA approved lenders can provide you with a PHFA loan.

    Not all approved lenders can offer you an FHA, conventional, VA or USDA loan (there are a few exceptions).
  2. PHFA does not take the application, approved lenders do - you work through them.
  3. Lenders take the mortgage application, process and underwrite the loan, and then submit it to PHFA for final approval, at which point you get the PHFA interest rate. Bank B may be authorized for conventional and FHA loans, while Bank C can only give you a USDA loan. So, if you apply to Bank A, they will most likely give you a conventional mortgage, which may or may not be in your best interests if the "best" mortgage is an FHA. Bank B would have been a superior option in this situation.

Which loan is right for me?

Only a mortgage professional can suggest the "best" mortgage program, but here's a thumbnail sketch of the various programs:

How do I benefit with a PHFA mortgage?

PHFA offers below market interest-rates and possibly a zero-interest loan to pay for the down payment/and or closing-costs (Keystone Assistance Programs).

Available loan programs

FHA home-loan - the benefit of an FHA mortgage loan is a low down payment 3.5% and (currently), a maximum seller assistance of 6%.

Lenders must be approved by both the Federal Housing Agency (FHA) and PHFA. Great program for low cash at closing.

Conventional Loan - In short, if the loan is not, FHA, VA or USDA, it's a conventional mortgage, also called a conforming loan. The down payment is 5% (however, 2% can be provided as a gift from a relative). Seller assistance is limited to 3% with a 5% down payment. Ideal for home first-time home owners with 20% down payment.

VA Loan - No down payment. That's right, the VA does not require a down payment, that's not to say that you can't make a down payment, you can. And if you do, the monthly mortgage payment will be lower. A great feature of this mortgage is that the seller can (but is not required) to pay ALL the closing-costs and the escrow and prepaids (i.e. property taxes, homeowner's insurance) up to 4% of the sales price.

Assuming the planets and stars are aligned, it is possible for the vet to purchase the house without any money out of pocket. No monthly mortgage insurance.

USDA Loan - United States Department of Agriculture. A loan program sponsored by the Department of Agriculture? I know it sounds strange, but, keep in mind that millions of our citizens live in rural areas and USDA provides a mortgage for rural America. Here's the benefit, no down payment, a seller assistance of (currently) 6%.

Now for the bad news, the house must be located in an area targeted by the USDA