With its rich history, relative affordability, and easy access to both rural and city areas, who wouldn’t want to live in Pennsylvania? The state has much to offer prospective homebuyers, whether you are looking for a home with property or want to settle down in the city.
But buying a home can feel daunting and unachievable, especially if you are looking to purchase your first home. As of the fourth quarter of 2021, median home prices in Pennsylvania were $543,830. This is higher than the national median sales price ($408,100), which represents a large sum of money for a first-time homebuyer. Potential homebuyers will need to budget for a down payment, closing costs, monthly mortgage payment, and that doesn’t even include the cost of utilities.
With some loans requiring as little as 3% down, the initial down payment on the average home could be around $16,300. However, In the current housing market where sellers are often receiving multiple offers on a home, larger down payments can make an offer more competitive, not to mention keep the monthly payment lower. Coming up with that amount of money to spend on a single purchase can be daunting, especially for first-time homebuyers, who don’t have equity in an existing home.
So how can first-time homebuyers get into the housing market and craft the most competitive offers? Down payment assistance in Pennsylvania does exist, and you might be able to take advantage of one of the state’s programs. We talked with a few resident Pennsylvania home buying experts to get the lowdown on the current housing market and down payment assistance programs prospective buyers can use.
Buyers concerned that these types of programs might hurt their chances of beating out offers or working with certain real estate agents shouldn’t worry. We talked to Philadelphia agent, Josh McKnight, who has closed 12% more sales than the average Philadelphia agent, and who says of down payment assistance programs, “I’ve never had a bad experience with one.”
In this article, we’ll discuss the availability of down payment assistance programs in Pennsylvania, who qualifies for them, and everything you need to do financially to prepare to buy a home in the Keystone State. We have some stellar tips for buying a home and our experts are dishing out helpful advice for anyone ready to become a homeowner in Pennsylvania. Read on to get all the details!
How much do you need to buy a house in Pennsylvania?
While paying for your home in cash sounds like a dream, most first-time homebuyers use a loan to buy the house. When you buy a home, you typically have to contribute a certain amount of your own money to qualify for a loan. This is called your down payment. In addition, you usually pay certain fees to close on the home, called closing costs.
Looking at home prices can quickly dash your dreams of owning a home if you feel like you will never save anything near starting home prices. But the good news is there are loan programs available that allow you to buy a home with as little as 3% down. To put that in perspective, for a home priced at $400,000, you would need to put down $12,000 plus whatever your closing costs total. Hopefully, that price tag seems a bit less daunting than $400,000.
According to Damien Manno, Assistant Vice President of Real Estate Lending at Ardent Credit Union, “Pennsylvania tends to be high on closing costs.”
Buyers should also take note of real estate taxes in the area as they search. Tax rates vary in Pennsylvania, ranging anywhere from 0.91% to 2.46%. Using a property tax calculator can help you estimate what these may be.
It can be tough to win a house in the current housing market, according to McKnight. “Sometimes people want to be in that neighborhood, so they’re willing to overpay, they’re willing to cover an appraisal that comes in under the appraised amount,” he says.
Finding the right house for your budget may just be a matter of looking in the right area. Average home prices skew higher in larger metropolitan areas like Philadelphia and Allentown with average prices of $324,800 and $279,500 in Q3 of 2021, respectively. However, other areas offer much more affordable options. Average prices in the Erie area as of Q3 of 2021 were $157,100, according to the National Association of Realtors.
Let’s discuss some cost scenarios for a home in Pennsylvania. Looking to buy a $200,000 home? Here are what some different down payment amounts will be for a house at that price:
- 3% down = a $6,000 down payment
- 3.5% down = a $7,000 down payment
- 10% down = a $20,000 down payment
- 20% down = a $40,000 down payment
This gives you an idea of how much to start saving, but remember the other costs you will be responsible for. Consider your closing costs. Depending on where you purchase, these could be close to another $10,000.
Whether you are looking in a specific area of Pennsylvania or you are open to multiple areas, be sure to shop around before settling on a house. You can talk to a local agent or search online to find out what you can get within your price range in each area.
Types of down payment assistance available in Pennsylvania
Pennsylvania has both government-funded and privately funded down payment assistance programs to offer homebuyers. These programs come in a variety of forms. When shopping for down payment assistance programs, make sure you know how the program works.
Manno notes that some programs require you to stay in the home for a set number of years. Applying for a program that requires you to be in the home for five years when you don’t plan to be there that long may not make sense.
A grant is the most ideal for homebuyers because once you meet its terms and conditions, it doesn’t have to be paid back. It is essentially free money given to those who qualify. Look for this type of program first because you don’t have to worry about paying it back in the future.
Many other down payment assistance programs are offered in the form of a second mortgage. This works exactly as it sounds — it is a loan that buyers will have to pay off alongside the primary mortgage they have for the home. Some second mortgages, however, don’t require payments and only need to be paid back in the event that you sell or refinance the home.
Depending on the program, this second mortgage may have the same interest rate and similar terms as the first mortgage, or they may be different.
For example, the Pennsylvania Housing Finance Administration (PHFA) offers the Keystone Advantage Assistance Loan Program. This program offers a second mortgage with a 0% interest rate to help with closing costs and the down payment. It must be paid back over a period of 10 years.
Forgivable second mortgage
Some second mortgages may be forgiven or partially forgiven after a certain period of time. Buyers using these loans may need to make payments over a specified number of years, but after a certain period of time, or after certain conditions are met, the loan will be forgiven.
Matched savings grant
A matched-savings grant means the buyer must put down a certain amount of money on the house, and the amount they put down can be matched up to a specified amount.
For a matched savings grant up to $10,000, if the buyer has $10,000 for a down payment, their down payment will total $20,000 with the grant funds that are matched dollar-for-dollar.
Who handles down payment assistance in Pennsylvania?
Free money sounds great, but where does it come from? Many down payment assistance programs are government-funded. These programs are handled by the Pennsylvania Housing Finance Agency (PHFA), but they are administered by participating lenders. The PHFA website is a great resource for prospective homebuyers on the hunt for information about down payment assistance programs. You can set up a time to talk to a homebuyer education provider and look through info on current programs.
Some counties and cities in Pennsylvania also have their own housing and finance agencies or locally-funded down payment assistance programs. In these areas, buyers can find the best resources for local down payment assistance programs and closing cost help.
For example, Berks County has the Neighborhood Housing Services of Greater Berks (NHS) and State College has a First Time Home Buyer Program administered through the city.
The PHFA distributes funding for programs that are federally funded for first time home buyers, and they also organize any homebuying programs that are administered through the state. Applicants can look to participating lenders to apply. Any locally funded programs will be handled through the local housing authority or the local government.
You may also find down payment and closing cost assistance from various banks and non-profit organizations. For example, Bank of America offers grant programs for first-time homebuyers that help with both down payments and non-recurring closing costs. Interested in a historic home? Check with local historical societies to find out if they offer any grants for buying and restoring historic homes.
Wherever you live or plan to live in Pennsylvania, research who handles housing programs in your area. “If buyers want to get super hyper local, they could check this specific county they’re in or maybe a township or city. See if there’s any sort of special grants available,” says McKnight. Your city or county government can typically give you more information about where to look and who to talk to if you are curious about these programs.
Who qualifies for these programs?
For any mortgage loan applicant, “It’s important to have your ducks in a row,” according to Manno.
He notes that any lender will be looking for things like a satisfactory credit history and verifiable income for at least two years. Manno adds that your credit score matters: “The higher your score, the more likely you are going to be able to take advantage of first time home buyer perks.”
For a down payment assistance program, you will have to have these ducks in a row in addition to specific program requirements. These requirements differ from program to program. Home buyers should check the requirements of the program they plan to apply for to make sure they qualify.
In Pennsylvania, applicants may need to:
- Be a first-time homebuyer (not owned a house for the past three years)
- Fall in low- to middle-income brackets for the area
- Live full-time in the home purchased
- Put down a specified amount of their own money
- Purchase a home only in areas specified by the program
- Meet minimum credit score requirements
- Take a buyer education course
Homebuyers must also work with an approved lender for these programs. And, as with any mortgage or loan, buyers will be evaluated for their debt-to-income ratio (DTI), credit score, and other qualifications to take on the loan. This checklist will help you understand what you will need to apply for any mortgage.
While applicant requirements differ from program to program, these are some of the most common qualifying factors. Please note that some programs can be combined, while others will only let you receive benefits from one program. The best way to find out if you qualify is to read about specific down payment assistance programs.
Special down payment assistance programs
Looking for something more specific? If you have a disability or your employer offers housing assistance, then you may have extra opportunities for down payment assistance.
Pennsylvania homebuyers who are eligible for certain home loans and have a disability can apply for an additional $15,000 to help with their down payment.
Homebuyers who work at a participating employer may also find down payment assistance through their work. The Employer Assisted Housing Initiative (EAH) provides funding to employers so that they can provide additional funds to employees for purchasing a home.
What about closing costs?
First-time homebuyers may be surprised to find out that closing costs can mean shelling out an additional $5,000 to $10,000 on top of the home purchase price. But, never fear — Pennsylvania has several programs that help with closing costs in addition to the down payment.
What are closing costs?
Closing costs are any costs necessary for the purchase of the home that are over and above the price of the house.
Closing costs can include any of the following:
- Deed recording fees
- Title insurance
- Appraisal fees
- Survey costs
- Title searches
- Home inspection
- Any other fees you may need to pay to complete the purchase of a home
In Pennsylvania, the typical closing costs tend to be higher than other states. As of February 2022, average closing costs in Pennsylvania were $9,437.44. These costs can vary depending on where you purchase a home in Pennsylvania and some of the options you choose. For example, you may be able to find a more affordable option for a home inspection that can lower your costs.
Pennsylvania programs to help with closing costs
Manno notes that in a different market, a seller’s assist can be negotiated, where the seller will pay some of the closing costs — but in the hot market we’ve seen as of March 2022, that doesn’t generally happen. So what can buyers do to help cover closing costs?
There are multiple programs in Pennsylvania that will help with closing costs. Homebuyers can find out if they are eligible for any of these programs that help cover closing costs:
- PHFA Grant
- Keystone Forgivable in Ten Years Loan Program (K-FIT)
- HOMEstead Down Payment and Closing Cost Assistance Loan
- Employer Assisted Housing (EAH) Initiative
- First Front Door Program
Choose your down payment assistance adventure!
Ready to fund your dream of becoming a homeowner? There are multiple down payment assistance programs available in Pennsylvania, but each one has its own set of requirements and benefits. These are some of the best options available if you are on the search for down payment assistance in Pennsylvania.
Provided through the PHFA, this is a $500 grant that can be used towards a down payment and/or closing costs. This grant can only be used if you use the HFA PreferredTM (Lo MI) loan.
Applicants do not need to be first-time homebuyers to apply, but they must fall under the specified income requirements for their county. They are also required to put down at least $1,000 of their own money.
They will need to have good credit history and complete a homebuyer education course. Interested buyers can contact a participating lender in their county to get more information.
Keystone Advantage Assistance Loan Program
If you need an extra boost in your down payment, this program could be for you. The Keystone Advantage Assistance Loan can be used to help fund the down payment and closing costs.
Participants in the program will receive a second mortgage for up to 4% of the home purchase price or $6,000, whichever is the smaller amount. This program works for buyers using any of these loans:
- HFA Preferred (Lo MI) Loan
- Keystone Government Loan
- Keystone Home Loan
Requirements include a credit score of 660 or higher, liquid assets totaling $50,000 or less (after deducting the funds needed to close the loan), and a minimum loan amount of $500. If you are using one of the specified loans and think you may qualify for this program, you can talk to a lender in your area.
Keystone Forgivable in Ten Years Loan Program (K-FIT)
Another program that can be used for both down payment and closing costs, K-FIT is a forgivable second mortgage loan that will be forgiven over a period of 10 years at a rate of 10% per year. Participants will receive 5% of the purchase price or the appraised value of the home, whichever is lesser, and there isn’t a cap on the amount buyers can receive. This loan works for those using a Keystone Home Loan.
Again, requirements to participate include a credit score of 660 or above, a minimum loan amount of $500, and liquid assets totaling less than $50,000 (after deducting the funds needed to close the loan). Contact a local participating lender to apply.
Access Down Payment and Closing Cost Assistance Program (for those with disabilities)
The PHFA offers this loan to qualified buyers with disabilities or those who have family members with a disability. It can be used in combination with any of the PHFA’s home loan programs. Eligible applicants may qualify for up to $15,000 to help with a down payment and closing costs in the form of a no-interest loan.
Depending on the other loan programs used by the applicant, they may or may not need to be a first-time homebuyer. Other requirements for the program include:
- Must also be a participant in the Access Home Modification Program
- Have an annual household income that doesn’t exceed 80% of the family median income for Pennsylvania
- Completing a homebuyer education course if your credit score is below 680
Talk to a participating lender in your area to find out more and apply.
HOMEstead Closing Cost and Down Payment Assistance Loan
The HOMEstead Loan comes in the form of a second mortgage with no interest. Qualified applicants will receive between $1,000 and $10,000 to help with closing costs and a down payment. The loan will be forgiven at a rate of 20% for five years.
Requirements to receive this loan include:
- Meeting the down payment requirements of whoever is insuring the loan
- Fitting the income limits specified by county
- Purchasing a home below the limit specified by county
- The home must meet federal property guidelines including federal regulations for Lead-Based Paint Hazard Reduction (24 CFR Part 35)
Interested buyers can contact a participating lender to apply.
Employer Assisted Housing Initiative
EAH is funded through the Pennsylvania Housing Finance Administration, but it’s administered through a participating employer. Interested homebuyers can check with their employer to see if they participate in the program.
Employees with low to moderate incomes may receive a Keystone Advantage Loan for up to $8,000 that will help cover down payment and closing costs. The loan will be an interest-free loan that will amortize over 10 years.
First Front Door
First Front Door is a federally funded program that matches every $1 put in by the qualified buyer with $3 to help with closing costs and the down payment. That means if the buyer puts in $1,000, they will be matched with $3,000 in grant funds. Participants can receive up to $5,000 in funds.
Requirements for the program include:
- Being a first-time homebuyer
- Completing first-time homebuyer counseling
- Must not be a student working less than 30 hours a week
- Must have an income that is lower than 80% of the median income in your area (For Philadelphia County in 2022, this means the income for a one-person household must be below $52,950)
- Cannot receive cash back at settlement for any reason
- Keep the home for at least five years
Reach out to a participating lender near you if you think you may qualify.
This list is not exhaustive, so make sure you do your homework. You never know where you may find down payment assistance. Consider asking your HR department, looking at local banks, searching online, or reaching out to your local government.
Why working with a top agent is key
Navigating the housing market can be tough, especially if you’ve never bought a home before. Finding a skilled and experienced real estate agent will help you find your way with the least confusion. They can advise on current trends, curate a search that fits your criteria, and help you create the best offer possible within your budget when you decide to purchase. They may also be able to help you find a lender experienced with down payment assistance programs.
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