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PHFA Mortgage: How does it work?

PHFA logoThe Pennsylvania Housing Finance Agency does NOT originate your mortgage. PHFA uses approved mortgage lenders to manage the loan application on behalf of PHFA. Mostly, banks and some mortgage brokers. These lenders will qualify you based on the PHFA and mortgage guidelines; and will manage your application like any other mortgage. In most cases, the lender will send your application, sales contract, etc. to the Pennsylvania Housing Finance Agency for approval.

Once approved, you will go to closing and subsequently send 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.

Confused emoticonBut, 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 application, process and underwrite the loan and send it off to PHFA for final approval, and you get the PHFA interest rate. Bank B may be approved for conventional mortgages and FHA mortgages, and Bank C can only offer you a USDA mortgage. So if you apply to Bank A, chances are, they will offer you a conventional mortgage, which may or may not be in your best interest, if the "best" mortgage is an FHA. In this scenario, Bank B would have been a better choice.

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