HFA Loan Guide: How to Finance a Home if You’re a Low Income Earner

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People interested in buying a home who don’t believe they have the financial resources to do so may want to consider their local Housing Finance Agency. 

HFAs, as they are known, are state-chartered organizations that offer prospective homebuyers with low to moderate incomes the ability to purchase a home with reduced upfront costs and monthly payments.

“The HFA loan is especially important for first-time home buyers. It is intended to make the process more accessible,”says Nicole Christopherson, a broker and founder of NMC Realty, a realty company based in California. “With the loan, you have the ability to make lower down payments, sometimes as low as 3% of the purchase price, your monthly mortgage insurance premiums may go down as a result, and you may have the option to garner financial assistance for your down payment, as a loan or grant.”

Read on to learn more about this government-backed assistance program that helps people become homeowners who otherwise couldn’t afford to.

What Is an HFA Loan?

HFA loans are offered through a partnership between state Housing Finance Agencies (HFAs) and Fannie Mae and Freddie Mac, which are federally backed mortgage companies created by the U.S. government. HFA loans were designed to make first-time home buying affordable to those with low to moderate income. They often get confused with FHA loans, which are loans offered by the Federal Housing Administration for low to moderate income borrowers. The programs are similar but offer different advantages. 

HFA loans offer borrowers lower monthly payments, closing cost assistance, and help with down payments.

How HFA Loans Work

Freddie Mac and Fannie Mae each offer their own HFA loan option. Fannie Mae offers the “Preferred,” while Freddie Mac offers the “Advantage.” Both options are conventional, fixed-rate mortgages, and the down payment is a minimum of 3%. With these loans, homebuyers are required to pay for private mortgage insurance (PMI), but that gets cancelled when they pay down the mortgage to 80% of their home’s value. 

Pro Tip

If you’re interested in obtaining an HFA loan, prepare to do some research. Find your local agency, research its requirements, then reach out for an application form.

Even though HFA loans are good for first-time home buyers, they are also offered to those who would like to refinance. Fannie Mae’s preferred option has an option for cash-out refinancing.

“The process is similar to other types of mortgages,” says Jason Gelios, a real estate agent at Community Choice Realty in Michigan and author of “Think Like a REALTOR.” “The upfront costs and monthly mortgage insurance tend to be lower compared to other types of loans. An application is completed just like obtaining any other form of mortgage.”

Who Is Eligible for an HFA Loan?

To find out if you qualify, you’ll have to do some digging, as income requirements differ by state.

“Each local housing finance agency has its own rules, so it’s important for borrowers considering HFA loans to reach out to their local agency prior to pursuing this type of loan,” says Michael Foguth, founder of Foguth Financial Group, a financial planning service.

For example, in Connecticut, your gross income must not be greater than 80% of the median income in the area that you’re buying in. But every state is different. 

You’ll  need to have a credit score of at least 620, and you may need to provide your tax returns. Proof of income is also required to prove your ability to meet monthly payments.

How to Apply for an HFA Loan

If you’re a prospective homebuyer interested in an HFA loan, start by finding your local HFA agency. Browse its website and read up on its requirements. Then, reach out to the office.

“They will get you the right forms and point you to their approved list of lenders that can start the process,” Gelios says. “The rest is just like obtaining a regular mortgage.”

What Are HFA Loan Rates?

Those who qualify for HFA loans can expect rates lower than the typical mortgage. For example, on Aug. 16, the mortgage rates offered by Connecticut’s HFA were about 0.3% lower than the national average. Prospective homebuyers, again, will have to make some inquiries to find out what rates they could get.

“HFA loan rates vary by program and borrower,”  says Christopherson. “It’s always important to check in with your local agency for further guidance. As with most loans, as a general guideline, the higher the credit score and larger the down payment, the lower the loan rate will be.”

Alternatives to an HFA Loan

“There is no one-size-fits-all when it comes to mortgage programs,” Christopherson says. “What’s best for one buyer may not work for you. It’s smart to compare your options.”

If you’re not eligible for an HFA loan or want to compare it to other options, here are some other government agencies that offer prospective homebuyers assistance:


A Federal Housing Administration (FHA) loan is designed for those with low to moderate income. FHA loans allow for 3.5% down payment and are good for those with lower credit scores. A credit score of at least 580 is required to qualify, or 10% down instead. With an FHA loan, your down payment can come in the form of a gift from a family member. This type of loan is popular with first-time homebuyers. With this loan, you are required to pay for PMI.

Veteran Affairs

VA loans are for Veterans, Service members, and surviving spouses. This type of loan offers little to no down payment, low interest rates, and doesn’t require mortgage insurance. 


This is another type of loan designed for low to moderate income buyers. USDA loans are backed by the U.S. Department of Agriculture, and it offers financing with no down payment and low interest rates. Homes must be purchased in a “rural” area, which the USDA defines as an area with a population of less than 20,000 people. 


HomeReady is provided by Fannie Mae and just like the HFA loan, it’s designed for low income buyers. A minimum of 620 credit score is required and this loan offers a 3% down payment option. 

Home Possible

Home Possible is offered by Freddie Mac and it’s for low-to-low-income borrowers. It also offers down payments as little as 3%.