Philadelphia first-time homebuyers have many paths available to purchase home
The home buying process can be a daunting experience. One issue first-time homebuyers run into is how to finance their new home. Getting a mortgage can be confusing and there are many avenues to venture. Fortunately, the Pennsylvania Housing Financial Agency has many options — a few that can be combined, too. With some solid information and differentiating what your needs are, your mortgage will be sound, sealed, and delivered.
The Rittenhouse Square realtors at Maxwell Realty are confident that you can find the first-time homeowner mortgage that you need to make your Philadelphia real estate purchase a reality. Let’s get you the information that you need to get the ball rolling.
How Do You Qualify as a “First-Time Home Buyer?”
First, what qualifies you to be considered a “first-time home buyer” in Pennsylvania? According to Nerd Wallet, a first-time home buyer is defined as a person who has not held. title to a primary residence within the past three years U.S. veterans and homebuyers in specific areas can take advantage of Pennsylvania Housing Financial Agency Programs (PHFA), without having to abide to the first-time home buyer restrictions.
- The U.S. Department of Housing and Urban Development (HUD) also qualifies the following:
- Single parents who possessed home ownership only during marriage
- Previously homeowners’ property was not permanently fixed to a permanent foundation
- Previously owned home was not in compliance with state, local, or model building codes
WHERE TO START – Process, Stay Focused, and Execute!
First, do not finance anything before initiating a home purchase. Your credit rating will be reviewed, and you will want to be minimizing your earning-to-debt ratios that will most definitely be reviewed.
Before signing any loan paperwork:
- Start saving money ASAP! A nest egg always helps. There are a bunch of programs out there that can help you manage your spending and to monitor credit reports, such as Rocket Money.
- Review and fix your credit report. Compare your score with the different credit reporting bureaus such as Experian, Equifax, and TransUnion. Examine if there are adjustments that can be favorably made and worked upon.
- Explore first-time home options. Before seeking a mortgage – get what you are entitled to. See if there are any grants or government home buying programs you may be eligible for. Familiarize yourself with the varying loans and avoid interest-only and adjustable loans.
- Determine what you think you can afford. This requires sitting down and examining your household budget. Add up all your expenses and how much income you receive each month. This will give you a better understanding of how much you can spend each month on a mortgage.
- Get your paperwork situated! Some of the documents you’ll need to get a mortgage include: W2s, stock realized and unrealized gains, 30 days (about 4 and a half weeks) of paystubs, loan documentation, 12 months of paid rental payments.
- PRE-QUALIFY for a loan. By starting the loan process early, you can complete the mortgage approval process timely and stay ahead of the game. Contact an experienced loan officer to get the ball rolling.
What Type of Credit History Will I Need?
Your credit history allows lenders to determine how long you have credit and its characteristics such as timely payments, debt accumulated, and credit available. The universal tool used to measure this is your FICO (Fair, Isaac and Company) score.
The FICO score helps lenders have a measure to determine how to allocate rates to prospective borrowers: those who possess higher scores have better credit and get the better rate. You can influence your reports with timely payments, and by minimizing outstanding debts.
Equifax, Experian, and TransUnion are the three credit reporting agencies that host your credit evaluations. You can download free reports for all three are available AnnualCreditReport.com. It’s important to look at your credit report because there may be errors present. If you do find errors, the government offers a detailed information about how to navigate and request corrections.
FICO scores range from 300 to 850. For conventional mortgages, scores of 680 or above are typically the markers for qualifying. FHA loans typically require a score of 580, with a minimum of 3.5 percent down; or a score of 500, with 10 percent down. Depending on the lender, some may require a score of 620.
The good news is that Pennsylvania has many programs and grants available to first-time homeowners. The key is to examine the qualifications and the exclusions. Many of these choices can be paired, so let us get to the practical details of it all.
What Grants are Available for First-Time Homebuyers in Philadelphia?
PHFA provides programs for first-time homeowners, including down payments and closing aid:
PHFA’s Keystone Forgivable in 10 Years Program (K-FIT)
K-FIT is a zero interest loan that can be used for a down payment and closing fees. One hundred percent of costs are forgiven if you reside in your home for 10 consecutive years from date of purchase. Each year, ten percent of the loan is forgiven. There is a $10,000 cap on assisted monies.
There are income qualifiers; to apply, contact a participating PHFA lender to determine eligibility. You will need a FICO score of at least 660 and have less than $50,000 in cash.
Keystone Advantage Assistance Loan Program
Interest-free 2nd mortgage that is financed to be paid off within the first ten years. You can borrow up to 4 percent of the home’s appraisal value. Assistance is capped at $6000, and only provided for the minimum opening and closing costs.
To qualify, all borrowers’ credit score must have a minimum of 660. After closing costs, liquid assets cannot exceed $50,000 (this includes stocks, certificates of deposit, etc.). IRAs and 401ks will be included if they have a liquidate feature. The minimum loan amount is $500.
97 Conventional Loan
This type of loan is a conventional fixed-rate mortgage loan with only 3 percent down. The loan is named “97” because the lender is financing 97 percent of the mortgage.
To qualify, you must be first time homeowner and one of the buyers must attend homebuyer educational class. The homeowner will need to have the home as their primary residence. The home may be valued at $647200 or less and can be one unit, single-unit, co-op, or HUD.
First Front Door
This program can help with down payment and closing costs by offering $3 to every $1 for up to $5,000. It is a first-come, first-serve basis.
Qualifiers must maintain the home as primary residency for five consecutive years from closing date.
HOMEstead Down Payment and Closing Cost Assistance Loan
PFHA offers an interest-free second mortgage for up to $10,000. Loan balance drops 20 percent each year, with no payments necessary. This is a five-year process. The first loan on this mortgage is provided by PHFA’s Keystone Home Loan Program and requires all the same financial limits
Qualifiers must maintain living in residency for 5 years from closing and homestead income limits must be met.
However, as of Sept 13, 2022, the Philadelphia County is not eligible for this loan (but keep it on your radar!). Homes built before 1978 are excluded from this loan.
Employer Assisted Housing (EAH) Initiative
If the employee is approved for a PHFA mortgage loan, additional discounts are readily available, with this program:
- 30-year, fixed rate; competitive rates
- Down payment and closing costs loans available
- Funds available year-round
- May be used for new or existing homes; refinancing
Pennsylvania Housing Financial Agency Mortgage Programs for First-Time Homebuyers
According to Realtor.com, the median listing price for a Philadelphia home in March 2022 was $270,000. PHFA offers competitive 30-year fixed-rate mortgage rates and low fees by teaming with different lenders and brokers. These mortgage rates can be combined with FHA, VA, or RD loans. Also, Employer Assisted Housing is available with participating employers.
HFA Preferred TM (Lo MI)
Mortgage insurance is provided by private mortgage insurance lender when you put down less than 20 percent of the home’s value. This enables the interest rate to be lower, although less has been put down on purchase. The money can be used to purchase or refinance primary residence; first-time buyer status not needed.
To qualify, you need a minimum $1,000 deposit of your personal funds and possess an acceptable credit history. Qualifiers will also need to complete pre-closing education program by PHFA-approved housing counseling agency (in-person education receives $500 credit).
The great thing about this program is you can combine this loan with the Keystone Advantage Assistance Loan and aPHFA $500 grant used for purchase and closing costs of the home.
There are some exclusions to this program:
- Total household income cannot exceed $84,320 for Philadelphia.
- Two-unit properties are excluded; Keystone Home and Keystone Government Home Purchase Loan can be viable options in this scenario.
Keystone Government Loan (K-Gov)
This program provides first mortgage financing on FHA, (RD – not applicable in Philadelphia) and VA loans. The buyer is not required to be first-time home buyer. Eligibility is determined by PHFA participating lender guidelines of the FHA or VA agencies. Maximum loan limits apply. In Philadelphia, the purchase limit is $484,600.
Borrowers who meet the PHFA’s income and purchase price limits can be eligible for the Keystone Home Loan Program. In addition, borrowers who meet PHFA’s income and purchase price limits can also be eligible for a Mortgage Tax Credit Certificate ($500). This can also be combined with the Keystone Advantage Assistance Loan.
If your FICO credit score is lower than 680, you are required to take the homeowner education course to qualify.
Keystone Home Loan Program
There are three types of loans available within this program. Not all participating lenders offer these loans, and depending on the lender, there may be different eligibility requirements.
- Conventional insured loans: Pennsylvania Housing Insured Fund (PHIF) insured. To qualify, you will need 3 to 5 percent deposit and a FICO score of 660 or above.
- FHA loans: Federal Housing Administration (FHA) insured. To qualify, you need a 3.5 percent minimum deposit.
- VA loans: These are loans that are guaranteed by the Veterans’ Administration (VA). No down payment is needed in most scenarios.
These three loans in the Keystone Home Program do have conditions:
- You and all the residents of the intended home to be purchased must maintain residency in this home within 12 months from closing; all adult residents must qualify as first-time homeowners.
- The total house income within one year of the loan closing does not exceed the current Keystone Home Loan Income limit of either $126,400 for 1-2 residents or $147,500 for 3 or more residents. Exceptions: Workers under the age of 18, and current full-time undergraduate residents receiving income.
- The Keystone Home Loan Purchase Price Limit is not exceeded: currently, the rate in Philadelphia is $484,600.
- You must maintain a healthy credit history and score and use 30 percent or less of your income for monthly mortgage payments.
- Mortgage application and closing costs can be met and are affordable.
- Funds for 20 percent down payment of appraised home value. If down payment is less, mortgage insurance is needed.
The Keystone Home Loan Program may be able to combine the Keystone Government Loan Program with PHFA Access Modification Assistance.
Mortgage Tax Credit Certificate
The Mortgage Tax Credit Certificate allows homeowners to claim a credit for 20-50 percent of the mortgage interest paid per year, up to $2.000 maximum. To qualify, you must reside in the home as primary residence; have FICO score 680 or above or take the home educational course, and; must meet eligibility of PHFA first mortgage program.
The tax credit can be combined with the PFA Preferred TM (Lo MI), the Keystone Governmental Loan, and the Keystone Advantage Assistance Loan.
How Do I Get Pre-Approved for a Mortgage?
Having your mortgage ready to go gives you bargaining power and information about how much you need to finance from your money lender of choice. Pre-approval mortgage letters are also a great tool to have, as sellers may request this to know you are serious about your bid.
To get the pre-approval mortgage process started, all you need to do is fill out a mortgage application, which will trigger a hard credit history inquiry. Once you are approved, the pre-approval is good for approximately three months, so make sure to time your application accordingly.
Going through the pre-approval process is a good practice to understand how well your credit score is and how much you qualify for.
Ready to Buy Your First Home in Philadelphia? Don’t Forget to Contact Our Philadelphia Realtor!
Reviewing and managing the first-time home-buying process is key. So make sure you:
- Gather your financial documents, employer records, and available credit history
- Review your credit report and manage your credit status
- Speak to PHFA participating lender about securing a mortgage, based on your needs and your qualifications as a first-time homebuyer. The PHFA homebuyer Counseling & Education Center offers counselors and education programs. Alternatively, or in addition to these efforts, online PHFA hosts many online resources.
- Get pre-approved for a mortgage.
Once you complete all these steps, you’re ready to contact Maxwell Realty so we can make your first home happen.
Knowledge is power. With the right tools, and managing all that is available to you, you will be turning the key to your Philadelphia residence in no time. Maxwell Realty is here to make all your first home dreams of buying a home In Philadelphia come true.
If you’re thinking about buying your first home in Philadelphia, now is the right time to talk with our Philadelphia realtor. Contact Maxwell Realty today to see what homes we have available and to begin the home-buying process.