Philly First Home Program: How It Works, and Why It Is Especially Useful Right Now

I've seen lot of people have been talking about the new and improved Philly First Home Program. Most people my age assume they would never be able to buy a house, and then they hear about some of the money that is out there for first time homebuyers and it sparks their imaginations. I certainly appreciate that, as a loan originator, but what is the Philly First Home program exactly?

It’s a first-time (or first-time in a while) homebuyer down-payment assistance program through the Philadelphia Division of Housing and Community Development (DHCD). There is a website out there that lays out the big picture, but it leaves out a lot of the nitty gritty details that you would need to know if it’s actually a good deal or not. So I made a few calls and got in contact with Bryan Flynn Pearson at the DHCD to give me the low-down on the program.

First of all, they call it a grant, which sounds like they just give you the money if you buy the house with it, but it is actually what we call a “soft second”. That is a second mortgage on the property that you will eventually buy, that you don’t pay and is forgiven over a certain period of time. I happen to offer another program through the state (which I talk about all the time) called the PHFA KFIT that is extremely similar to this new program. Here's a little table I made that lays out the big differences:

At first I thought Philly First paled in comparison to KFIT which has already been available to all Pennsylvanians for over a year . That was because the biggest difference is the amount of money you can get out of the program. Philly First offers 6% of the lower of the purchase price or appraisal value, and KFIT offers 5%, HOWEVER Philly First caps out at $10,000 in Homebuyer Assistance, whereas KFIT only has a price limit of $461,000, meaning it caps out at $23,050. For Philly First to be a better deal cash wise, you would have to be buying a place for $200k or less, which is hard to find in Philadelphia, though not impossible.

The other big L is the income limit. Philly First’s income limit takes your entire household into account regardless of who is actually on the mortgage, and stacks based on your household size, starting at $73,800 for a one person household. KFIT has 2 versions, the standard KHL+KFIT also stacks according to household size, $115,900 limit for 1-2 people. $135,200 for more. Philly First does not beat KFIT on income limit unless your household includes 8 or more people. KFLEX+KFIT has a one size fits all limit of $161,000 only for people on the mortgage (which is much less restrictive than either alternative).

Now here’s why you DEFINITELY still want to check out Philly First.

The PHFA KFITS are secondary loans that can only be added on to a PHFA primary loan (primary loan is your main mortgage that you will be paying), either the Keystone Home Loan or the KFLEX Home Loan. These both have their own sets of rates, which change every day but are the same for everyone who gets them. The KHL has a little lower rate because there are more restrictions, the KFLEX is a little higher. Since they are one size fits all, that means your credit score, which normally gets you a better rate, doesn’t affect it. That means if your credit score is lower (minimum credit scored for KFIT is a 660, so say 660-720) it might be a better rate than you would get otherwise, and if your score is high (say 720 or higher), it might not be quite as good as you would get without the KFIT.

BUT!

As you probably know, rates are going up rather quickly at the moment. With KFIT you get what you get; the Philly First 2nd, however can be tacked on to any normal loan program (we search hundreds of programs and providers to get you the best rate for your situation). Not only does that mean if your credit score is on the high end, you could potentially end up with a better rate on your primary loan, it also means that you have the option to buy down your rate. What that means is you can pay money up front for a lower rate for the duration of the loan. This doesn't help much if you didn't have much money to start with, but if you had some, you now have $10,000 more some of which you can use to buy your higher rate down to a more reasonable rate. We can also lock them as soon as we have an agreement of sale, which we cannot do quite so fast on KFIT.

PHFA KFITs also require max financing. That means you must put the lowest amount of cash down for whatever loan type you are in. For instance, on an FHA loan, max financing is 96.5% of the value of the house, or 3.5% down, but KFIT is 5% of the value, you cannot use the KFIT to instead put 5% down, so the remaining funds go to your closing costs. Philly First does not have that requirement, so if you had to the cash to do so you could use the funds from Philly First to put additional money down on the property.

The Verdict

It depends.

For purchase prices $200k or lower, Philly First is easily the best deal. Unfortunately, $200k or lower can be hard to find in this city. For higher prices, and if you're strapped for up front cash KFIT will likely be a better deal. It has a better income limit and pays out more cash, plain and simple. On FHA you could reasonably close on a $201k house with ~$8K out of your pocket (I have done it with less, but it wasn’t pretty). With rates the way they are, however, there is a very good case to be made for Philly First, even over $200k if you have some cash and meet the requirements, as it is less restrictive with what you do with your $10k. This frees you up to put additional cash down, pay off other debts, or most importantly, buy down your interest rate to a more reasonable figure.

In any case, it helps to get a loan originator with a good handle on these things who will listen to what you want to do and help you pick the best deal for you.

Oh by the way, that's me. I am licensed in PA, I am a mortgage originator who is happy to help you with a KFIT, KFLEX, Philly First or any mortgage program. I specialize in first-time homebuyers. In 20 minutes I can learn your situation, figure out what program would be best for you and set you up with a realtor when you're ready. If you're not ready yet, I can tell you exactly what you need to do to be ready.

If you’ve ever wanted to buy a house in the near or distant future a free, 0 commitment, 20 minute call with me could put you on track.