Keystone Forgivable in Ten Years Loan Program (K-fit)

For many Pennsylvania homebuyers, the barrier to homeownership isn't the monthly mortgage payment—it's coming up with enough money for a down payment and closing costs. The Pennsylvania Housing Finance Agency (PHFA) recognized this challenge and created the Keystone Forgivable in Ten Years Loan Program, commonly known as K-FIT, to help eligible homebuyers bridge the gap between their savings and the funds needed to purchase their first home.

K-FIT is a subordinate forgivable loan program designed to provide down payment and closing cost assistance to qualified homebuyers who are purchasing their primary residence. Unlike traditional loans, K-FIT funds are gradually forgiven over a ten-year period, reducing the borrower's debt obligations annually.

Program Overview

The Keystone Forgivable in Ten Years Loan Program is part of the Pennsylvania Housing Finance Agency's commitment to making homeownership more accessible and affordable for working Pennsylvanians. The program pairs with two first mortgage products: the Keystone Home Loan Program and the Keystone Flex Loan Program, offering comprehensive financing solutions for eligible buyers.

As a subordinate mortgage closed in PHFA's name, K-FIT provides a forgivable loan based on five percent of the lesser of the purchase price or appraised value, with no maximum dollar amount. This structure allows borrowers to access significant down payment and closing cost assistance without the weight of a traditional second mortgage that must be fully repaid.

Eligibility Requirements

Credit Score Requirement

Borrowers must have a middle FICO score of at least 660 to qualify for K-FIT. This requirement ensures that participating borrowers have demonstrated some level of creditworthiness while remaining accessible to a broader range of homebuyers than many conventional programs.

First Mortgage Program Eligibility

K-FIT is exclusively available to borrowers who qualify for:

Keystone Home Loan Program (KHL): Available under conventional, FHA, VA, or RD financing options
Keystone Flex Loan Program: Available under the purchase options (K-Flex with K-FIT or K-Flex Purchase & Improvement with K-FIT)

Borrowers must meet all requirements of their chosen first mortgage program. For Keystone Home Loan borrowers, this includes meeting first-time homebuyer requirements (unless located in target areas), income limits, and purchase price limits specific to their county.

Liquid Asset Limitation

Borrowers' liquid assets may not exceed $50,000 after deducting the funds needed to close on the loan. Liquid assets include cash, checking and savings accounts, stocks, bonds, certificates of deposit, and similar liquid accounts. However, funds from retirement accounts such as 401(k)s, IRAs, and pension funds are only counted if they can be withdrawn without penalty due to the borrower meeting age requirements or being retired.

This asset limitation ensures that the program serves buyers who genuinely need assistance, not those with substantial financial resources.

Homebuyer Education Requirement

All borrowers obtaining K-FIT must complete homebuyer education. The specific requirements vary based on credit score:

Borrowers with middle credit scores below 680: Must complete an in-person homebuyer education class or counseling session at a PHFA-approved counseling organization prior to closing. Online courses are not acceptable for this group.
Borrowers with middle credit scores of 680 or higher: Must still complete a homebuyer education class or counseling session prior to closing, but only one borrower needs to complete it. Online courses are acceptable for this group, with approved options including HomeView® or PHFA-provided courses.

A Certificate of Completion from the counseling organization must be included in the purchase package to PHFA.

Loan Terms and Usage

Assistance Amount

K-FIT assistance cannot exceed five percent of the lesser of the purchase price or appraised value, with no maximum dollar amount. The minimum loan amount is $500. This generous cap means that borrowers purchasing higher-priced homes can receive substantial assistance without hitting an arbitrary ceiling.

Forgiveness Structure

One of K-FIT's most attractive features is its forgiveness structure. The loan is forgiven on an annual basis over ten years at a rate of 10 percent per year. This means:

Year 1: 10% of the original loan amount is forgiven
Year 2: 10% of the original loan amount is forgiven
And so on, until Year 10 when the final 10% is forgiven

After ten years of on-time payments and continued owner occupancy, the entire K-FIT loan is completely forgiven. The borrower's debt is eliminated, and they own their home free of this particular obligation.

Permitted Use of Funds

K-FIT funds must be used to cover the borrower's down payment requirement (other than their minimum required contribution) and/or closing costs associated with the home purchase. "Closing costs" refers to reasonable and customary costs typically paid by the buyer.

K-FIT funds cannot be used to:

Finance more than the applicable minimum down payment requirement
Finance VA or RD guaranty fees
Finance the FHA Upfront Mortgage Insurance Premium (these items may be financed by the first mortgage)

Maximum Financing Requirements

To qualify for K-FIT, borrowers must be utilizing maximum PHFA financing. Any K-FIT funds exceeding the borrower's down payment requirement must be used to cover closing costs.

Program Restrictions and Limitations

Program Exclusivity

K-FIT cannot be combined with other PHFA assistance programs, with one exception: the Access Modification Loan Program. This means borrowers must choose between K-FIT and the Keystone Advantage Assistance Loan (Advantage), not both.

No Refinances

K-FIT is exclusively a purchase program. Refinances are not eligible. Borrowers who wish to refinance must pay off any remaining K-FIT balance as part of the refinance transaction.

Loan Assumptions

K-FIT loans are assumable under certain conditions. The assumption rules state that the K-FIT loan can only be assumed when the first mortgage program is assumable. This means:

Conventional, FHA, and VA first mortgages: K-FIT is assumable
RD first mortgages: K-FIT is not assumable (because the underlying RD loan is not assumable)

When assuming a K-FIT loan, the assuming borrower must meet all original program requirements, including income limits and any applicable purchase price limits for the property as an existing home.

Lender Instructions and Procedures

Locking Funds

The K-FIT loan is locked simultaneously with the Keystone Home Loan or the applicable Keystone Flex purchase option. Lenders accomplish this through PHFA's Pipeline Plus system, selecting the appropriate loan product based on loan type, lock period, and specific PHFA program.

Underwriting Procedures

For underwriting purposes, K-FIT is entered into the borrower's loan file as either subordinate financing or as an asset, depending on the first mortgage program type:

KHL Conventional and K-Flex Conventional purchase options: K-FIT may be entered as subordinate financing or as an "Other Liquid Asset" in Desktop Underwriter (DU)
KHL government loans and K-Flex government purchase options: K-FIT may be entered as subordinate financing or as an asset, per applicable federal agency guidelines (FHA, VA, or RD)

The PHFA Pre-Closing Package Review Results will indicate whether the K-FIT loan was approved and the specific amount.

Closing Procedures

The first mortgage closes in the lender's name, while the subordinate K-FIT loan closes in PHFA's name. This structure means:

For the First Mortgage:

Closed by the participating lender
Assigned to PHFA using the appropriate form

For the K-FIT Loan:

Closed in PHFA's name
No assignment required
Must be recorded in second lien position

Form Requirements: Lenders prepare the K-FIT Subordinate Mortgage and Note using PHFA's specified forms:

Form 54 KFIT (Subordinate Mortgage Note)
Form 55 KFIT (Subordinate Mortgage Instrument)

The amount must be the actual assistance being disbursed at closing, rounded to the nearest dollar, and listed on the Closing Disclosure.

Loan Estimate and Closing Disclosure: Lenders are responsible for completing the Loan Estimate and Closing Disclosure for the subordinate K-FIT loan using industry-standard compliant forms. One unique requirement: the late fee should be removed from both disclosures, as K-FIT loans do not have applicable late fees.

Disbursement at Closing: At closing, the lender disburses only the actual amount of assistance needed, up to the amount initially approved by PHFA. Cash back to the borrower is limited to $100 in excess of reimbursement for paid outside closing (POC) items.

Recording Requirements: The K-FIT loan must be recorded in second lien position. This will be verified post-closing by PHFA. No assignment of the subordinate mortgage is required since it closes in PHFA's name.

Post-Closing Procedures

When PHFA purchases the first mortgage, it also reimburses the lender for the actual amount of funds used by the borrower under the K-FIT loan, as listed on the Closing Disclosure.

Required Documents for Purchase Package:

Lenders must forward the following executed subordinate mortgage documents to PHFA with the purchase submission:

Loan Estimate (Form 56 KFIT) and Closing Disclosure (Form 57 KFIT)
Subordinate Mortgage Note (Form 54 KFIT)
Certified copy of the Subordinate Mortgage (Form 55 KFIT) with evidence it was sent for recording
A copy of any other subordinate mortgages (for other down payment/closing cost/rehab funds received where a mortgage is recorded)

The K-FIT loan must be recorded in second lien position, which PHFA will verify post-closing.

Document Submission Timeline:

The Closing Disclosure submitted with the SRP (Servicing Release Premium) portion of the file is used to verify the amount of funds actually used by the borrower. Lenders must forward the original recorded mortgage document (Form 55 KFIT) to PHFA within sixty days from the date of purchase.

If other down payment/closing cost/rehab programs are utilized, copies of those recorded mortgages must also be forwarded. This documentation confirms that the PHFA K-FIT Mortgage was recorded in second lien position.

Mortgages must be attached to a properly completed Form 30 and submitted to PHFA at the address referenced on the form.

How K-FIT Works: A Practical Example

Consider Maria and James, a married couple purchasing their first home in Pennsylvania:

Purchase Details:

Purchase price: $200,000
Appraised value: $200,000
First mortgage: Keystone Home Loan, conventional financing
Down payment needed: 10% ($20,000)
Closing costs: $5,000
Borrowers' available funds: $8,000

K-FIT Calculation:

K-FIT limit: 5% of lesser of purchase price or appraised value = 5% × $200,000 = $10,000
Remaining down payment needed: $20,000 - $8,000 = $12,000
K-FIT can cover: min($10,000 available from 5% rule, $12,000 needed) = $10,000

Financing Structure:

First mortgage from lender: $170,000 (85% LTV)
Down payment from borrowers: $8,000
K-FIT forgivable loan: $10,000 (covers remaining down payment, plus $2,000 toward closing costs)
Remaining closing costs: $3,000 (borrower responsible)

Forgiveness Schedule:

Year 1: $1,000 forgiven (balance: $9,000)
Year 2: $1,000 forgiven (balance: $8,000)
Years 3-10: $1,000 forgiven each year
Year 10: Final $1,000 forgiven (balance: $0)

After ten years, Maria and James will have $10,000 of their debt forgiven automatically, provided they continue to own and occupy the home as their principal residence.

Advantages of K-FIT

Significant Assistance

By allowing up to five percent of the purchase price with no maximum amount, K-FIT can provide substantial help. On a $300,000 home, this amounts to $15,000 in potential assistance—a meaningful contribution to down payment and closing costs.

True Forgiveness

Unlike assistance programs that must be repaid or that create ongoing monthly obligations, K-FIT is genuinely forgivable. Borrowers don't make payments on the K-FIT loan; it simply gets forgiven annually.

Assumable

If borrowers sell their home to a qualifying buyer, that buyer can assume the K-FIT loan. This makes the property more attractive to future buyers and extends the program's impact.

Flexible Use

Funds can be applied to either down payment needs or closing costs, giving borrowers flexibility based on their specific circumstances.

No Asset Test Restrictions

Unlike some assistance programs, K-FIT doesn't prevent borrowers with modest savings from qualifying. The $50,000 asset limit is reasonable and accommodates many hardworking buyers.

Important Considerations

Homeownership Requirements

Borrowers must occupy the property as their principal residence within 60 days of closing and must continue to occupy it as a principal residence. The K-FIT forgiveness is contingent on continued ownership and occupancy.

Long-Term Commitment

The forgiveness happens over ten years. Borrowers must plan to stay in their homes for the full decade to realize the complete benefit. If a home is sold before ten years, any unforgiven balance must be repaid from sale proceeds.

Program Integration

K-FIT must be paired with an eligible first mortgage program. Borrowers cannot use K-FIT as a standalone loan. This ensures that the program serves borrowers who are otherwise mortgage-ready.

Credit Score Requirement

The 660 FICO score minimum may exclude some borrowers. Those with lower credit scores but who might otherwise qualify for a PHFA first mortgage should explore the Keystone Advantage Assistance Loan instead.

The Path Forward

The Keystone Forgivable in Ten Years Loan Program represents a forward-thinking approach to homeownership assistance. By reducing the need for a large down payment and providing gradual debt forgiveness, K-FIT removes one of the biggest obstacles to homeownership for Pennsylvania families.

For borrowers who meet the eligibility requirements, K-FIT offers a clear path to homeownership: find an eligible first mortgage program, complete homebuyer education, locate a PHFA-approved lender, and access meaningful financial assistance that will be forgiven over ten years.

Partnering lenders can use K-FIT to expand their customer base to include qualified borrowers who can afford the monthly mortgage payment but struggle with the upfront costs of purchasing. PHFA's commitment to removing barriers to homeownership through programs like K-FIT continues to help thousands of Pennsylvania families achieve the dream of owning their home.

How to Apply

Homebuyers interested in K-FIT should:

Contact a PHFA Participating Lender to discuss first mortgage options
Determine which first mortgage program (Keystone Home Loan or Keystone Flex) best fits their situation
Complete the homebuyer education requirement through a PHFA-approved counseling organization
Work with their lender to submit the loan application and documentation
Receive approval for both the first mortgage and K-FIT
Close on their home and begin their journey to complete homeownership

For more information about K-FIT and PHFA programs, visit www.phfa.org or call 717.780.3871.

This article is based on the Pennsylvania Housing Finance Agency's Homeownership Programs Seller's Guide (June 2025). Program details, guidelines, and eligibility requirements are subject to change. Borrowers and lenders should consult with PHFA directly for the most current information.