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FHFA First-Time Home Buyer Mortgage Rate Discount: Explained
The first government relief program for first-time home buyers is here.
With mortgage rates at 20-year highs and home affordability worsening, the Federal Housing Finance Agency (FHFA) enacted conventional mortgage rate discounts for all eligible first-time buyers using a Fannie Mae- or Freddie Mac-backed mortgage.
This post covers all details of 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?
- → How Does the FHFA Mortgage Rate Discount Work?
- → How Much Can First-Time Home Buyers Save?
- → Who Qualifies For the FHFA Mortgage Rate Discount?
- → Other First-Time Home Buyer Discounts and Deals
- → FAQ About FHFA First-Time Home Buyer Mortgage Rate Discounts
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 launched in late 2022.
The interest rate-cutting program eliminates up to 1.75% in mortgage rate add-ons 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 conventional mortgage financing
- Move in within 60 days of closing
- Earn a low or moderate household income
Home buyers can use the FHFA mortgage rate discount for single-family and multi-unit properties, adjustable- and fixed-rate mortgages, and city and rural homes.
How Does the FHFA Mortgage Rate Discount Work?
The FHFA Mortgage Rate Discount waives loan-level pricing adjustments (LLPAs) on conventional mortgages made to first-time buyers.
LLPAs are micro-interest rate modifications based on a home buyer’s risk profile. Along with macro-rate factors such as inflation rates and U.S. housing outlooks, loan-level pricing adjustments are why every home buyer gets a different mortgage rate quote from their lender.
Eight micro-adjustments affect a typical conventional mortgage:
- The buyer’s credit score
- The size of the buyer’s down payment
- Whether the buyer uses an adjustable-rate mortgage
- Whether the buyer’s home is a primary residence
- Whether the buyer’s home is a multi-unit property
- Whether the buyer’s home is a condominium
- Whether the buyer’s home is a manufactured home
- Whether the buyer uses a subordinate lien
The FHFA First-Time Home Buyer Mortgage Rate Discount eliminates these micro-adjustments. Quoted mortgage rates can be as much as 1.75 percentage points lower.
Get pre-approved for a mortgage today.
How Much Can First-Time Home Buyers Save?
Eliminating loan-level pricing adjustments make mortgages more affordable. Under the new FHFA plan, home buyers get mortgage rate discounts of as much as 1.75 percentage points off standard market rates.
At today’s mortgage rates, dropping 1.75 percentage points creates a sixteen percent monthly savings. Mortgage rate discounts are most significant for buyers with below-average credit scores who make small 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 any person who hasn’t owned a home in the last three years. Exceptions are available to displaced homemakers and single parents if their prior residence was jointly-owned with a spouse and they owned no other marital properties.
Read more about first-time home buyers.
Your home must be your primary residence
The FHFA mortgage rate discount is for primary homes only, meaning you will 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 discount for vacation homes and short-term rentals.
You must move in within 60 days of closing
The first-time buyer mortgage rate discount requires buyers to take residence in their new home within 60 days of closing. If you plan to make home repairs before taking occupancy, ensure your home is habitable within two months of buying it. Exceptions apply for deployed active duty military.
You must be a low- or middle-income wage earner
The first-time home buyer mortgage rate discount is a home affordability tool for low- and middle-income wage earners. The FHFA restricts its use to buyers whose income falls below the area median income.
Note: the FHFA makes a 20% income exception for buyers in high-cost areas.
You must use a conventional loan
The FHFA is the parent to Fannie Mae and Freddie Mac, and the first-time buyer mortgage relief program is for conventional mortgages only. Home buyers using FHA, VA, and USDA mortgage loans are ineligible.
Other First-Time Home Buyer Discounts and Deals
HomeReady Discounted Mortgage Rates
HomeReady is a Fannie Mae-backed program for buyers in low- and middle-income census tracts. Like the FHFA First-Time Buyer Mortgage Rate Discount, HomeReady mortgage rates are LLPA-limited to support affordable homeownership. HomeReady requires a 620 FICO minimum.
Home Possible Discounted Mortgage Rates
Home Possible is a Freddie Mac-backed mortgage program for low- and middle-income wage-earners. Home Possible relaxes mortgage approval standards and caps loan-level pricing adjustments to keep mortgage rates low. Home Possible enforces a minimum 660 FICO score.
$25,000 First-Time Home Buyer Grant
The Downpayment Toward Equity Act gives first-time, first-generation home buyers up to $25,000 in cash for a down payment on a home, mortgage and other closing costs, and state and government expenses linked to buying a home. The program is still a bill in Congress and has yet to pass 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 buyers of homes. To qualify for the program, buyers may not have owned a home in the last 36 months and must be purchasing their home in an arms-length transaction. The $15,000 tax credit bill has yet to pass Congress.
Check the status of all government programs for home buyers.
USDA mortgages are no-down payment home loans for buyers of modest means in suburban and rural communities. USDA mortgage rates are often lower than rates on comparable, fixed-rate loans. Mortgage insurance premiums are lesser, too. The U.S. Department of Agriculture backs USDA loans.
VA loans are mortgage loans guaranteed by the Department of Veterans Affairs. VA loans allow100% financing for active duty military and veterans with ultra-low mortgage rates. VA mortgage approvals require a 580 FICO score.
State & 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 via the government’s Department of Housing & Urban Development (HUD) website. Buyers should call program administrators before application to verify eligibility.
FAQ About FHFA First-Time Home Buyer Mortgage Rate Discounts
How do I apply for the FHFA mortgage rate discount?
Home buyers eligible for the FHFA mortgage rate discount receive their discount automatically. There is no application and no other requirement. To find the size of your discount, get pre-approved today.
Am I eligible as a first-time home buyer if my spouse owned a home previously?
The FHFA’s definition of a first-time home buyer requires each mortgage applicant not to have an ownership interest in a home within 36 months of closing. Buyers cannot claim the interest rate discount if the spouse is on the mortgage application and not a first-time buyer.
Am I eligible for the program if I’m buying a mobile home?
Yes, buyers of mobile homes are eligible for the FHFA First-Time Home Buyer Mortgage Rate Discount.
Will this discount apply if I’m currently closing on a home?
No, the FHFA mortgage rate discount only applies to mortgage loans that close on or after December 1, 2022. Loans that closed before December 1, 2022, are ineligible.
Will this discount apply if I purchased a home 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 a government group and parent of Fannie Mae and Freddie Mac. Congress does not control the FHFA, so the group does not need Congressional approval to make changes for first-time buyers.
Does the FHFA mortgage rate discount get rid of g-fees, too?
The FHFA First-Time Home Buyer Mortgage Rate Discount does not eliminate conventional mortgage guarantee fees (g-fees). G-fees are administrative costs linked to the servicing and collecting payments on a loan.
Get pre-approved for a mortgage today.