Understanding the PHFA Keystone Home Loan Program

The Pennsylvania Housing Finance Agency (PHFA) offers the Keystone Home Loan Program to help first-time homebuyers achieve their dream of home ownership. This program provides affordable financing for eligible buyers throughout Pennsylvania. Learn how the Keystone Home Loan can work for you.

What Is the Keystone Home Loan Program?

The Keystone Home Loan Program is a first mortgage financing option created to make homeownership more accessible. PHFA uses mortgage revenue bonds to fund these loans, which allows the agency to offer competitive interest rates and favorable terms. The program is designed specifically for first-time homebuyers who meet income and purchase price limits.

The program accepts conventional loans, FHA-insured loans, VA-guaranteed loans, and USDA Rural Development loans. This flexibility means you can choose the loan type that works best for your situation.

Borrower Eligibility Requirements

Several key requirements determine whether you can get a Keystone Home Loan. First, you must be a first-time homebuyer. PHFA defines this as someone who has not owned a home during the previous three years. However, there are exceptions. Veterans do not need to meet the first-time buyer requirement in most counties.

Your income cannot exceed the program limits set for your county. PHFA lists income limits for each area of Pennsylvania. Income includes wages, self-employment earnings, Social Security payments, and other regular income sources. Household income is calculated based on all adults who intend to occupy the home within twelve months of closing.

All borrowers must have a middle credit score of at least 620. Borrowers with credit scores below 680 must complete homebuyer education counseling before closing. PHFA covers the cost of this counseling for borrowers.

Purchase Price Limits

The purchase price of your home cannot exceed the maximum set by PHFA for your county. These limits vary throughout Pennsylvania. Some counties are designated as target areas where the first-time buyer requirement does not apply. Target areas often have higher limits to encourage revitalization.

For new construction, the total acquisition cost includes the purchase price plus all costs to complete the home. This includes painting, landscaping, driveways, and any improvements. If you purchase land separately and then build, the cost calculation is different.

If you buy from a relative, PHFA uses the appraised value or cost approach value instead of the purchase price to determine whether you meet the program limits.

Down Payment and Closing Cost Assistance

The Keystone Home Loan Program allows you to finance up to 97 percent of the purchase price or appraised value. Financing at these high loan-to-value ratios requires you to contribute at least the lesser of $1,000 or 1 percent of the loan amount from your own funds.

PHFA offers down payment and closing cost assistance through the Keystone Advantage Assistance Loan. This subordinate loan can help you cover costs beyond your minimum contribution. The assistance loan is interest-free and amortizes over ten years.

PHFA also offers the Keystone Forgivable In Ten Years (K-FIT) Loan. This program provides assistance equal to five percent of the purchase price or appraised value, forgiven at ten percent annually over ten years. This means your down payment assistance is gradually erased each year you stay in the home.

The Access Home Modification Program helps borrowers with disabilities make necessary modifications to their homes. This program works alongside your first mortgage and provides up to $10,000 for accessibility improvements.

Loan Terms and Mortgage Insurance

All Keystone Home Loans have a thirty-year fixed rate and level monthly payments. The loan amount cannot be shortened or lengthened. You can pay off your mortgage early without penalty.

Loans with loan-to-value ratios above 80 percent require mortgage insurance. Conventional loans use the Pennsylvania Housing Insurance Fund (PHIF). PHIF insurance has zero upfront premium and costs about 0.20 to 1.54 percent annually depending on your credit score and down payment.

FHA loans require FHA mortgage insurance. VA loans have a funding fee instead. USDA loans have a guarantee fee. These costs are included in your loan amount.

Property Requirements and Standards

Your property must be a modest, single-family home, duplex, or condominium that you intend to occupy as your principal residence. You must move into the home within sixty days of closing. You cannot rent the property except for up to sixty days to the previous owner.

The property must meet PHFA minimum property standards. These standards ensure the home is safe, sound, and livable. Properties must have safe electrical and plumbing systems, adequate heating, and no structural damage. PHFA requires wood-destroying insect inspections on existing homes.

Special property requirements apply to certain property types. Manufactured homes must meet strict standards and have properly retired titles. Two-unit properties must have the second unit rented at market rate if you use rental income for qualification. Condominiums must meet PHFA approval standards.

Recapture Tax Consideration

If you sell your home within nine years of closing, you may owe a federal recapture tax. This tax applies because PHFA uses tax-exempt bonds to fund the loans. The maximum recapture tax is 6.25 percent of the mortgage amount or fifty percent of your gain, whichever is less.

PHFA requires you to sign a notice acknowledging this potential tax at closing. However, PHFA reimburses any recapture tax you must pay. This protection applies to all borrowers who close on or after January 1, 2004.

How to Apply for a Keystone Home Loan

To apply for a Keystone Home Loan, start by finding a participating PHFA lender. These lenders include banks, credit unions, and mortgage companies approved by PHFA. Contact the lender to discuss your financial situation and goals.

Your lender will lock your interest rate and price through PHFA Pipeline Plus. The lock secures your rate for a specific period, usually thirty to sixty days. Your lender will order an appraisal and verify your credit, income, and assets.

Once your documentation is complete, your lender submits a pre-closing package to PHFA for review. PHFA reviews your file to confirm you meet all program requirements. If approved, PHFA sends an eligible notification with any conditions to satisfy before closing.

At closing, you sign all mortgage documents and receive the keys to your new home. Your lender closes the loan and immediately sells it to PHFA. PHFA then becomes your mortgage servicer. You make all monthly payments to PHFA.

Assumption and Sale of Your Home

Under certain conditions, a qualified buyer can assume your Keystone Home Loan when you sell. The person assuming your loan must meet the same requirements that applied when you closed: first-time buyer status, income limits, and purchase price limits.

The assumption price cannot exceed the PHFA maximum purchase price for existing homes at the time of assumption. PHFA must approve the assumption in writing before it becomes final. Both you and the assuming buyer may owe recapture tax if the sale occurs within nine years of your original closing.

Refinancing Your Keystone Home Loan

The Keystone Home Loan Program does not permit refinancing. Once you close on your Keystone Home Loan, you cannot refinance into another Keystone Home Loan. You can refinance into other loan programs, but you will not retain the special benefits of PHFA financing.

However, PHFA offers other programs for borrowers who want to refinance. The FHA/VA Streamline Refinance Program allows streamlined refinancing with minimal documentation. PHFA also offers conventional refinancing options through the HFA Preferred Program.

Loan Servicing and Support

Once you close your loan, PHFA becomes your mortgage servicer. You can pay your mortgage online through PHFA's website or by mail. PHFA does not charge any additional fees for online payment services.

PHFA provides customer service support at 800-346-3597. Their staff can answer questions about your account, help with payment arrangements, and provide information about assistance if you face financial hardship.

PHFA manages your escrow account for property taxes and homeowners insurance. They collect funds each month to ensure your taxes and insurance are paid on time. They provide an annual escrow analysis to verify sufficient funds are collected.

Advantages of the Keystone Home Loan

The Keystone Home Loan Program offers several advantages compared to other loan products. The interest rates are typically lower than conventional rates because PHFA uses tax-exempt bonds to fund loans. The program allows high loan-to-value financing, which means you can buy with a smaller down payment.

Down payment and closing cost assistance programs make homeownership more affordable. You can get help with your minimum down payment requirement. Closing cost assistance can help cover appraisals, inspections, and other settlement costs.

The program does not have restrictive overlays beyond basic underwriting standards. PHFA accepts manually underwritten loans and does not impose additional credit requirements beyond the minimum 620 score.

PHFA provides free homebuyer education counseling for borrowers with lower credit scores. This counseling helps you understand mortgage payments, property maintenance, and budgeting as a homeowner.

FAQ About the Keystone Home Loan Program

What is the minimum down payment required?

The minimum down payment varies depending on the loan type. For conventional and FHA loans, you must contribute the lesser of $1,000 or 1 percent of the loan amount. However, you can finance up to 97 percent of the purchase price, so your actual down payment can be much lower when you use down payment assistance.

Can I use a co-signer to qualify for the loan?

Yes, you can use a co-signer on conventional and FHA loans if you need help with ratios. The co-signer must be a relative or spouse and must live in the home. Co-signers are not permitted on VA or USDA loans.

What happens if my circumstances change between application and closing?

If your income increases, you must recertify your income. If your new income exceeds the program limit, you will no longer qualify. If another adult moves into the home, their income and first-time buyer status must be verified. Changes must be reported to your lender and PHFA.

Can I prepay my Keystone Home Loan without penalty?

Yes, you can make extra payments at any time without penalty. You can pay off your entire loan early if you wish. Making extra payments reduces interest and builds home equity faster.

What assistance programs work with the Keystone Home Loan?

The Keystone Advantage Assistance Loan provides up to $6,000 for down payment and closing costs. The Keystone Forgivable In Ten Years (K-FIT) Loan provides up to 5 percent of the purchase price, forgiven annually. The Access Home Modification Program helps with disability accessibility improvements. HOMEstead provides subordinate financing for eligible first-time buyers. You can combine the first mortgage with multiple assistance programs.