HFA Preferred Loans

Written by Steven PorrelloSeptember 26th, 20223 minute read

What is an HFA Preferred loan? | Requirements and qualifications | Pros and cons | How to apply | Summary

An HFA Preferred loan is a conventional mortgage that offers lower up-front requirements, more affordable mortgage insurance, and potentially lower monthly mortgage payments.

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What is an HFA Preferred loan?

The HFA Preferred program was born out of a partnership between Fannie Mae and each state’s local housing finance agency (HFA), which provides financial assistance to home buyers. You can apply for the Preferred or Advantage programs through your local HFA, which will then connect you with an in-network lender.

HFA Preferred vs. HFA Advantage

HFA Advantage loans are nearly identical to the HFA Preferred program. Both loans have the same financial requirements: a minimum down payment of 3%, minimum credit score of 620, and maximum DTI ratio of 50%.

Here are the major differences:

HFA Preferred loans:
HFA Advantage loans:
Are backed by Fannie Mae
Are backed by Freddie Mac
Can be used for single-family and multi-unit properties
Can be used for single-family properties ONLY
Can be used for cash-out refinances
Cannot be used for cash-out refinances

Who qualifies?

HFA Preferred loans are ideal for home buyers who are:

  • Buying a house for the first time
  • In lower income brackets
  • In need of help with closing costs or their down payment

Each HFA has its loan requirements, so it’s best to check with your local HFA to see if you qualify. But, generally speaking, the following are requirements for most HFA Preferred loans.

At a glance: Requirements for a HFA Preferred loan

Down payment
3%
Credit score
620
DTI ratio
50%
Education
First-time home buyer course
Property types
Single-family and multi-unit properties
Occupancy
Home must be your primary residence, not an investment or rental property

Note: Your income and loan limits are set by your local HFA. Each county within your state will have different income limits. For instance, Delaware County in Pennsylvania has an income limit of $84,320, while Bradford County has a limit of $58,320. Your household income must be below this number to qualify.

In addition, local HFA rules don’t always line up with Fannie Mae's. For instance, many local HFAs will only accept first-time home buyers (e.g., in CT and DE), while Fannie Mae doesn't have to be a first-time requirement.

Applying for an HFA Preferred loan

  1. Find your state’s HFA using the state HFA directory from the National Council of State Housing Agencies.
  2. Call your local (state or county) HFA for information. Very rarely will you find the info you need online.
  3. Your local HFA agent will walk you through your eligibility and the application process for the specific HFA Preferred loan program.
  4. Your local HFA doesn’t lend money, but it’ll connect you with a lender in its network.

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Should I get an HFA Preferred loan?

✅ Key benefits of HFA Preferred loans

Low down payment requirement of 3%
Down payment and closing cost assistance
Low monthly mortgage insurance
Cancelable mortgage insurance once you have 20% home equity
Ongoing guidance and assistance

» SEE: First-Time Home Buyer Grants and Programs 2022

❌ Key pitfalls of HFA Preferred

High credit score requirement. You need at least a 620 to be eligible. For comparison, the FHA loan requires only 580.
Potentially high out-of-pocket down payment contribution. For instance, many HFAs require you to put down at least $1,000, though the rest can be a gift.
Inconsistent, confusing loan requirements between local HFAs and Fannie Mae. Online information is also hard to find, so you’ll need to contact your HFA to see if you’re eligible.

Federal Housing Administration (FHA)

  • Minimum down payment: 3.5%, or 10% (for credit scores between 500 and 580)
  • Minimum credit score: 500
  • Maximum DTI ratio: 43%
  • No income limits
  • Mortgage insurance: Up-front MIP and annual MIP

» MORE: FHA Loan Requirements 2022: How to Qualify

U.S. Department of Veterans Affairs (VA)

  • Minimum down payment: 0%
  • Minimum credit score: 620, but can vary by lender
  • Maximum DTI ratio: 41%
  • No income limits
  • No mortgage insurance

» MORE: What Are the Qualifications for a VA Loan?

U.S. Department of Agriculture (USDA)

  • Minimum down payment: 0%
  • Minimum credit score: 640, but can vary by lender
  • Maximum DTI ratio: 41%
  • Maximum income limits: 115% of area median income
  • Mortgage insurance: Up-front fee (1% of loan amount) and annual fee (0.35% of loan amount)

» MORE: USDA Loan Requirements (2022)

Home Possible (Freddie Mac) requirements

  • Minimum down payment: 3%
  • Minimum credit score: 660
  • Maximum DTI ratio: 45%
  • Maximum income limits: 80% of area median income
  • Mortgage insurance: Private mortgage insurance, which can be canceled after loan-to-value ratio hits 20%

HomeReady (Fannie Mae) requirements

  • Minimum down payment: 3%
  • Minimum credit score: 620
  • Maximum DTI ratio: 45%
  • Maximum income limits: 80% of area median income
  • Mortgage insurance: Private mortgage insurance, which can be canceled after loan-to-value ratio hits 20%

» MORE: Do I Qualify For a HomeReady Loan?

Summary

  • An HFA Preferred loan is a conventional mortgage with lower loan requirements and low mortgage insurance.
  • To qualify, you need a 3% down payment, a credit score of 620, a DTI of 50%, and to fall within your local HFA's income and loan limits.
  • Each HFA has slightly different requirements, so you’ll want to contact your local agency to see if you’re eligible.