The first government relief program for first time home buyers is here.
With mortgage rates at 20-year highs and home affordability deteriorating, the Federal Housing Finance Agency (FHFA) implemented conventional mortgage rate discounts for all eligible first-time buyers using Fannie Mae- or Freddie Mac-backed mortgages .
This post covers all the details on the FHFA first-time home buyer mortgage rate discount program, its eligibility requirements and other mortgage deals and discounts available to first-time home buyers.
What is the FHFA first time home buyer mortgage rate discount?
The FHFA First-Time Home Buyer Mortgage Rate Discount is a government-sponsored home affordability program set to begin in late 2022.
The interest rate reduction program eliminates mortgage rate add-ons of up to 1.75% for eligible first-time buyers.
To qualify for the FHFA mortgage rate discount, home buyers must:
- be a first time home buyer
- use the home as their primary/main residence
- use traditional mortgage financing
- Relocate within 60 days of closing
- earn a low or moderate household income
Home buyers can access the FHFA mortgage rate discount for single-family and multi-unit properties, adjustable- and fixed-rate mortgages, and city and rural homes.
Check your eligibility for the program.
How do the FHFA mortgage rate discounts work?
The FHFA mortgage rate discount waives the loan-level pricing adjustment (LLPA) on conventional mortgages made for first-time buyers.
LLPAs are micro-interest rate revisions based on the risk profile of a home buyer. Along with macro-rate factors such as inflation and the U.S. housing outlook, loan-level pricing adjustments cause each home buyer to receive a different mortgage rate quote from their lender.
Eight subtle adjustments affect a typical conventional mortgage:
- buyer’s credit score
- Buyer’s down payment size
- whether the buyer uses an adjustable-rate mortgage
- Is the buyer’s home the primary residence
- whether the buyer’s home is a multi-unit property
- Is the buyer’s home a condominium
- Whether the buyer’s home is a manufactured home
- whether the buyer exercises a subordinate lien
The FHFA first-time home buyer mortgage rate discount eliminates these micro-adjustments. Quoted mortgage rates could be as low as 1.75 percentage points.
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How much can first time home buyers save?
Mortgages become more affordable by eliminating loan-level pricing adjustments. Under the new FHFA plan, home buyers get a mortgage rate discount of 1.75 percentage points off standard market rates.
At today’s mortgage rates, dropping 1.75 percentage points translates to sixteen percent monthly savings. The mortgage rate discount is most important for buyers with below-average credit scores who make smaller down payments.
Who Qualifies for the FHFA Mortgage Rate Discount?
There are five FHFA first-time home buyer mortgage rate discount qualifications.
You must be a first time buyer
According to the FHFA, a “first-time buyer” is someone who has not owned a home in the past three years. Exceptions are available for displaced housewives and single parents if their prior residence was jointly with the spouse and they did not own any other marital property.
Read more about first time home buyers.
Your home must be your primary residence
The FHFA mortgage rate discount is only for primary homes, meaning you’ll live in the home for more than 180 days per year and use its address as your official residence. Home buyers cannot use the first-time buyer exemption for vacation homes and short-term rentals.
You must move within 60 days of closing
The first-time buyer mortgage rate discount requires buyers to live in their new home within 60 days of closing. If you are planning to renovate the home before taking possession, ensure that your home is habitable within two months of purchase. Exceptions apply for deployed active duty military.
You must be a low or middle income salaried
The first-time home buyer mortgage rate discount is a home affordability tool for low- and moderate-income earners. The FHFA restricts its use to buyers whose income is below the area median income.
Note: The FHFA makes a 20% income exception for buyers in high-cost areas.
You Should Use a Conventional Loan
The FHFA is the parent of Fannie Mae and Freddie Mac, and the first-time buyer mortgage relief program is only for conventional mortgages. Home buyers using FHA, VA and USDA mortgage loans are ineligible.
Get pre-approved to see if you’re eligible.
Other first time home buyer discounts and deals
HomeReady Discounted Mortgage Rates
HomeReady is a Fannie Mae-supported program for buyers in low- and moderate-income census tracts. Like the FHFA First-Time Buyer Mortgage Rate Discount, HomeReady mortgage rates are LLPA-limited to support the affordable homeowner. HomeReady requires a minimum FICO score of 620.
Home Potential Discounted Mortgage Rates
Homes Possible is a Freddie Mac-backed mortgage program for low- and moderate-income wage-earners. Home Possible loosens mortgage approval standards and limits loan-level pricing adjustments to keep mortgage rates low. Home Possible applies to a minimum 660 FICO score.
$25,000 First-Time Home Buyer Grant
The Downpayment for Equity Act gives first-time, first-generation home buyers up to $25,000 in cash for the down payment on the home, mortgage and other closing costs, and state and government expenses associated with buying a home. The program is still a bill in Congress and has not yet passed into law.
$15,000 tax credit
The First-Time Home Buyer Tax Credit Act awards up to $15,000 in federal income tax credits to first-time home buyers. To qualify for the program, buyers cannot have owned a home in the last 36 months and must purchase their home in an arm’s-length transaction. The $15,000 tax credit bill has yet to pass Congress.
usda loan
USDA mortgages are no-down payment home loans for home buyers of modest means in suburban and rural communities. USDA mortgage rates are often lower than rates for comparable, fixed-rate loans. Mortgage insurance premiums are also lower. The US Department of Agriculture backs the USDA loans.
VA loan
VA loans are mortgage loans guaranteed by the Department of Veterans Affairs. VA loans allow up to 100% financing for active duty military and veterans with ultra-low mortgage rates. A 580 FICO score is required for VA mortgage approval.
state and local government programs or grants
Municipal governments and charitable foundations may offer down payment assistance programs, cash grants and other incentives for first-time buyers. Buyers can check local availability through the government’s Department of Housing and Urban Development (HUD) website. Buyers should call the program administrator prior to applying to verify eligibility.
Get pre-approved to see if you’re eligible for any of these deals and discounts.
Frequently Asked Questions About the FHFA First Time Home Buyer Mortgage Rate Discount
How do I apply for the FHFA mortgage rate discount?
Home buyers eligible for the FHFA mortgage rate discount automatically receive their discount. There is no application and there is no other requirement. To find out the size of your discount, get pre-approved today.
If my spouse already had a house, am I eligible to buy a house for the first time?
The FHFA’s definition of a first-time home buyer requires that each mortgage applicant not have an ownership interest in the home within 36 months of closing. If the spouse is on the mortgage application and is not a first time buyer then the buyer cannot claim the interest rate discount.
Am I eligible for the program if I am buying a mobile home?
Yes, mobile home buyers are eligible for the FHFA first-time home buyer mortgage rate discount.
Will this discount apply if I’m currently closing on the home?
No, the FHFA mortgage rate discount only applies to mortgage loans that close on or after December 1, 2022. Loans closed before December 1, 2022 are ineligible.
Will this exemption be applicable if I have bought a house earlier this year?
No, the FHFA first-time buyer mortgage rate discount is for conventional mortgages that close on or after December 1, 2022.
When will the FHFA mortgage rate discount program pass into law?
The Federal Housing Finance Agency (FHFA) is the government group and parent of Fannie Mae and Freddie Mac. Congress doesn’t control the FHFA, so the group doesn’t need congressional approval to make changes for first-time buyers.
Does the FHFA mortgage rate discount also get rid of G-fees?
The FHFA First-Time Home Buyer Mortgage Rate Discount does not eliminate traditional mortgage guarantee fees (G-fees). G-fees are administrative costs associated with servicing and collecting payments on a loan.
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