The HOMEstead Program

The HOMEstead Program provides subordinate mortgage financing up to $10,000 for qualified first-time homebuyers. The financing is made available in combination with a first mortgage funded by PHFA.

The second mortgage is also provided by PHFA but uses funds from the HOME Investment Partnership Program (HOME) and the American Dream Downpayment Initiative (ADDI), both of which are administered by the U.S. Department of Housing and Urban Development (HUD). The program is intended to assist first-time homebuyers with their downpayment and closing costs. The amount of funds approved will depend upon the need of the borrower. It may be used to lower the front end ratio to 30 percent. The minimum loan amount is $1,000.

The HOMEstead mortgage is a non-interest bearing loan with no monthly payment. HOMEstead loans are forgiven on an annual basis over five years at a rate of 20 percent per year. The first mortgage can be an FHA insured, VA or RD Guaranteed or a Conventional loan which is originated in accordance with the Homeownership Program guidelines, including the Master Origination and Sale Agreement and this guide. These loans are sold “service released” to the Agency.

Lenders are responsible to determine that borrowers comply with both the PHFA first mortgage program guidelines as detailed in this guide as well as the HOME Program guidelines within this section.
The HOMEstead Program is not available for use with a Keystone Government Loan, the HFA Preferred or Keystone Flex loan program.

1. Availability of Funds
Locking of funds for the HOMEstead Program is on a first-come, first-serve basis done in conjunction with the lock of funds for the Agency’s Homeownership Program. The process will follow the current procedure now in effect. When the loan is locked via PHFA Pipeline Plus, a box will appear on the Subordinate Mortgages page for you to enter the assistance amount.

2. Eligible Lending Areas
Due to the HOME regulations, some areas of the state are not eligible for HOMEstead funds administered by the Agency. These areas are known by HUD as Participating Jurisdictions (PJ’s) and they have received their own allocation of funds, therefore, excluding them from the funds allocated to the Agency. See Appendices 1 or 2 for a listing of eligible areas.

The borrower may also be eligible for a first mortgage through the Agency and a second HOME funded mortgage through their participating locality, depending on the guidelines in that specific locality. Borrowers should contact the Department of Community and Economic Development regarding availability of funds in their area.

3. Borrower Eligibility
Borrowers must meet the eligibility requirements listed below.
a. Homebuyer Education

All borrowers applying under the HOMEstead program are required to complete an in person homebuyer education program at a PHFA/HUD approved agency regardless of their credit score.

First-time Homebuyer

Borrowers must be a first-time homebuyer (i.e. has not at anytime during the three years preceding the date of loan closing had an ownership interest in a principal residence). In addition, a borrower eligible for Assistance may not have an interest in any other real estate or an interest in a business other than the business which is his or her primary source of income. This requirement applies to all persons living in the property. Borrowers acquiring a home in a Target Area (See Appendix A for a list of “targeted” areas) are not required to be first-time homebuyers if one of the follow is true:
§ The borrower is a single parent which is defined as an individual who is unmarried or legally separated from a spouse; and has one or more minor children for whom the individual has custody or joint custody; or is pregnant.
§ The borrower owns or has owned a principal residence during the three-year period before loan closing but the residence was not permanently affixed to real property or was not in compliance with state, local, or Model Building Codes and cannot be brought into compliance with such codes, or other applicable codes, for less than the cost of constructing a permanent structure.

Income Limit

Borrowers must not have income which exceeds the program income limits for the geographic area in which the single family residence being acquired in located. (See Appendix 1) PLEASE NOTE: The income limits are based on 80 percent of the Area Median Income (AMI) and differ from those of the PHFA Keystone Program limits; however, calculation of income for qualification is computed in the same manner as the income requirements for the PHFA first mortgage products. Please note that an unborn child cannot be included in the family size to determine the number of family members for income limit purposes.

Loan Features & Guidelines

§ The amount of the HOMEstead mortgage is limited to no less than $1,000 and no more than $10,000. Loans are forgiven on an annual basis over five years at a rate of 20 percent per year. (Please note that PHFA does not require the assistance to be entered as a subordinate loan for automated underwriting purposes. Instead, it can be listed as an asset.)
§ The loan must finance the purchase of a single family owner-occupied (1 unit) residence. Loan proceeds cannot finance any of the following: the acquisition of personal property; land not adjoining to the residence; land adjoining the residence but not necessary to maintain the basic livability of the residence and which provides, other than incidentally, a source of income to the borrowers; settlement and financing costs which are in excess of that considered usual and reasonable.