What are HFA Loans?

HFA loans, also known as housing finance agency loans, are specialized mortgage options provided through state-run Housing Finance Agencies (HFAs).

These agencies expand access to affordable housing by design and often serve residents who may not qualify for traditional loan programs. By collaborating with Fannie Mae and Freddie Mac, HFAs offer enhanced conventional loan options known as the HFA Preferred loan and the HFA Advantage loan.

Each loan type serves the same purpose, but a different government-sponsored enterprise (GSE) backs each. Fannie Mae offers the HFA Preferred loan, while Freddie Mac supports the HFA Advantage loan. These partnerships allow state agencies to provide borrowers with flexible, low-cost mortgage solutions that are often more favorable than traditional loans.

Neighbors Bank does not currently offer HFA loans.

Benefits of HFA Loans

HFA loans provide several advantages to qualifying borrowers. These benefits go beyond just interest rates and help remove common barriers to homeownership:

• Reduced mortgage insurance costs compared to standard conventional loans

• Eligibility for HFA down payment assistance in the form of grants or forgivable second mortgages

• Lower interest rates through the state HFA mortgage programs

• Focused support for first-time and moderate-income homebuyers

• Encourages ownership in underserved and rural communities

For many borrowers, the combination of financial assistance and more relaxed lending criteria makes HFA loans a smart choice when comparing HFA vs. conventional loan alternatives.

How HFA Loans Work

The process for securing HFA loans closely resembles that of a traditional mortgage but includes additional support and oversight from the borrower’s state Housing Finance Agency.

Start with an HFA-Approved Lender

To begin, borrowers work with a lender approved to participate in state HFA mortgage programs. The lender then evaluates the application based on the HFA Preferred or HFA Advantage loan guidelines, depending on which program the state offers. Once the borrower is approved, Fannie Mae or Freddie Mac backs the loan, depending on the selected loan type. In addition to competitive terms, borrowers may qualify for HFA down payment assistance, which can help cover upfront costs such as the down payment and closing fees.

Loan Availability Varies By State

Each state chooses which government-sponsored enterprise (GSE) it partners with, so while some offer the HFA Preferred loan backed by Fannie Mae, others provide the HFA Advantage loan supported by Freddie Mac. Although the names differ, both loan types are nearly identical in their structure, benefits, and mission to support affordable homeownership.

Typical Loan Features and Terms

Typical loan terms under these housing finance agency loans include fixed-rate mortgages with 30-year terms and competitive interest rates. Qualified borrowers may benefit from significantly reduced private mortgage insurance (PMI), making monthly payments more affordable.

Many programs also offer access to homebuyer education and counseling, which help prepare borrowers for long-term success. Altogether, HFA loans provide a more accessible and supportive pathway to homeownership for individuals and families who may otherwise struggle to qualify for conventional financing.

HFA Advantage & HFA Preferred Loan Requirements

While each state sets its own HFA loan requirements, many core eligibility criteria are consistent across both the HFA Advantage loan and the HFA Preferred loan. Understanding these shared standards can help determine whether you qualify to apply for one of these affordable mortgage options.

Income Limits Based on Area Median Income (AMI)

Most state HFA mortgage programs impose household income limits based on the area median income (AMI).

• Borrowers typically must earn no more than 80% to 100% of the AMI.

• Limits may be adjusted upward in high-cost counties or regions.

Purchase Price Caps

In addition to income thresholds, states also establish maximum purchase price limits to ensure the program targets affordable housing. These limits vary depending on local market conditions and keep the program accessible for moderate-income buyers.

Emphasis on First-Time Buyers

Many programs are geared toward first-time homebuyers, generally someone who hasn’t owned a home in the past three years. However, some housing finance agency loans may be available to repeat buyers, particularly if the property is located in a designated target area.

Credit Score and DTI Requirements

Credit score requirements usually fall between 620 and 640, although some states may require a higher score depending on other financial indicators. Likewise, borrowers must typically meet a debt-to-income (DTI) ratio of 45% or less, though exceptions are sometimes made for applicants with strong credit histories or significant savings.

Homebuyer Education

In many cases, borrowers must also complete a homebuyer education course to qualify. These courses, which borrowers can take online or in person, promote financial literacy and prepare applicants for the responsibilities of homeownership.

Completing this education is often required to access HFA down payment assistance, further reinforcing the commitment to responsible lending and long-term homeownership success.

HFA vs. FHA Loans

Although HFA loans and FHA loans help buyers with limited income or credit history by design, they are structured and insured differently. Understanding the differences helps you choose the right loan for your situation.

FHA loans are insured by the Federal Housing Administration and are often considered a go-to option for buyers with lower credit scores. In contrast, HFA loans are conventional loans supported through state HFAs in partnership with Fannie Mae or Freddie Mac.

Here’s a side-by-side comparison of HFA vs. FHA loans:

While FHA loans can work well for certain buyers, especially those with lower credit scores, HFA loans generally offer better long-term affordability for qualifying borrowers. With reduced mortgage insurance and additional state support, housing finance agency loans can make homeownership more sustainable over time.

How To Apply for an HFA Loan

1. Start with Understanding Your State’s Guidelines

Applying for HFA loans involves several key steps, beginning with clearly understanding your state’s guidelines and working with an approved lender. Then, research your specific state HFA mortgage programs.

2. Research State HFA Mortgage Programs

Each state Housing Finance Agency provides detailed information on its website about available loan types, including the HFA Preferred loan and the HFA Advantage loan, as well as income limits, purchase price caps, and eligibility criteria.

3. Choose an HFA-Approved Lender

Once you’re familiar with your state’s program, the next step is to choose an HFA-approved lender. Not every lender is authorized to offer these specialized mortgage products, so selecting one that participates in your state’s program is important.

4. Verify Your Eligibility

After finding the right lender, you need to verify whether you meet the HFA loan requirements. This includes confirming that your income and the home’s purchase price fall within allowable limits and that your credit score meets the program’s minimum threshold. Your lender can assist in reviewing your qualifications and guiding you through the process.

5. Get Prequalified or Preapproved

Getting prequalified or preapproved is an important next step, as it gives you a clearer picture of your borrowing power and the amount of HFA down payment assistance you might be eligible to receive.

6. Complete a Homebuyer Education Course

Most programs also require completing a homebuyer education course, which may be offered online or in person. These classes cover essential topics such as budgeting, understanding mortgage terms, and preparing for long-term homeownership responsibilities.

7. Submit a Full Loan Application

After completing those steps, submit a full loan application, including documentation such as tax returns, pay stubs, bank statements, and identification.

8. Close on Your Home

After approval, you move to the final stage, closing on your home. At closing, the benefits of the housing finance agency loan are applied, which may include reduced mortgage insurance premiums and lower interest rates.

Why HFA Loans Are a Smart Option

HFA loans provide a streamlined, supportive path to homeownership for eligible borrowers. Backed by either Fannie Mae or Freddie Mac and supported by your local housing finance agency, these loans offer affordable options through the HFA Preferred loan and HFA Advantage loan.

With the added benefit of HFA down payment assistance, qualified buyers can secure better loan terms while saving thousands over the life of their mortgage.