HOMEstead Program: $10,000 Forgivable Down Payment Help in Pennsylvania

By Lena Polnet, Mortgage Loan Originator | NMLS #17225
Published April 28, 2026

The HOMEstead Program gives Pennsylvania first-time buyers up to $10,000 toward down payment and closing costs at 0% interest, forgiven over five years. Most buyers qualify for HOMEstead and never know it exists because their lender doesn’t write PHFA loans. I’m Lena Polnet, mortgage loan originator at Dynamic Funding Solutions, and HOMEstead is the smaller, county-restricted cousin of K-FIT — and the right answer for buyers in moderate-income brackets purchasing in eligible Pennsylvania counties.

What HOMEstead Is

HOMEstead is a no-interest second mortgage from the Pennsylvania Housing Finance Agency that provides between $1,000 and $10,000 in down payment and closing cost assistance. It is forgiven at 20% per year over five years. After year five, the lien releases and the loan is gone.

HOMEstead is funded through the federal HOME Investment Partnerships Program, administered by the U.S. Department of Housing and Urban Development. That federal funding source is the reason HOMEstead is restricted geographically — major Pennsylvania cities and seven counties get their own direct HUD HOME allocation, so they’re excluded from PHFA’s HOMEstead pool. Philadelphia County, for example, is excluded because Philadelphia runs its own city-level HOME program (Philly First Home).

What you get at closing

HOMEstead funds wire to closing alongside your first mortgage. The minimum loan is $1,000, the maximum is $10,000. Most buyers use the full $10,000 to cover the FHA 3.5% down payment plus part of closing costs.

What forgiveness looks like

20% of the original HOMEstead balance is forgiven every year you stay in the home. Year three sale = 40% repaid. Year five sale = zero repaid. No interest accrues at any point.

Who Qualifies for HOMEstead

HOMEstead is targeted at low- and moderate-income buyers. It is the most income-restricted of PHFA’s down payment assistance programs.

Income limits

Income limits vary by county and household size. They are set at or below 80% of Area Median Income (AMI) for the property’s county. Check current limits at phfa.org/programs/homestead.aspx — they update annually.

Purchase price limits

Purchase price limits also vary by county and follow PHFA’s HOMEstead-specific limits, which are tighter than K-FIT’s $659,000 ceiling. For most southeastern PA counties, HOMEstead price limits sit well below median home price — meaning HOMEstead works best on starter homes, townhouses, and condos rather than detached single-family in premium school districts.

Eligible counties

HOMEstead is administered countywide except in jurisdictions that receive direct federal HOME allocations. Philadelphia, Pittsburgh, and several other major cities and counties are excluded. Bucks County, Chester County, Delaware County, and most of Montgomery County are eligible. Confirm county eligibility before writing an offer — HOMEstead participation status changes when local HUD allocations shift.

How to apply

HOMEstead can only be combined with a PHFA Keystone Home Loan first mortgage. You apply through a PHFA participating lender. Dynamic Funding Solutions originates HOMEstead-paired loans and runs your eligibility against current county limits at pre-approval.

First-time buyer requirement

You must not have owned a home in the past three years, OR you must be purchasing in a federally designated targeted area. Targeted areas are census tracts identified by HUD where the program waives the first-time buyer rule.

How HOMEstead Works at the Closing Table

HOMEstead pairs with a Keystone Home Loan first mortgage. The first mortgage is a 30-year fixed-rate FHA, VA, RD, or conventional product, and HOMEstead sits behind it as a non-amortizing second lien.

You sign two notes at closing: the first mortgage note and the HOMEstead note. The HOMEstead note is interest-free and has no monthly payment. The lien sits silently and burns off 20% per year. Five Aprils after closing, you receive a satisfaction of mortgage in the mail and your title is clear.

If you sell, refinance, or stop using the home as your primary residence within five years, you repay the unforgiven balance at closing of the sale or refinance.

Property age restriction (the federal lead paint rule)

Most homes built before 1978 are not eligible for HOMEstead. This is a federal HUD requirement under 24 CFR Part 35 — the Lead-Based Paint Hazard Reduction Act. A pre-1978 home can still qualify if a HUD-certified lead inspection clears it, but the inspection cost and timeline kill most deals. In practice, HOMEstead works best for post-1978 construction.

How HOMEstead Combines With Other Programs

HOMEstead pairs only with a PHFA Keystone Home Loan first mortgage. It cannot be stacked with K-FIT (you pick one or the other) and it cannot pair with a non-PHFA loan.

You can combine HOMEstead with a Mortgage Credit Certificate when your first mortgage qualifies. That stack delivers $10,000 forgivable down payment plus a federal tax credit every year you own the home — the strongest entry-point combination for moderate-income Pennsylvania buyers in eligible counties.

For a full comparison of PHFA programs, see what nobody tells first-time home buyers in Pennsylvania.

What Most Buyers Get Wrong About HOMEstead

The first mistake is assuming the home they want qualifies. Pre-1978 homes — common across Bucks, Montgomery, and Chester counties — are usually disqualified by the lead paint rule. Buyers fall in love with a 1950s ranch and find out at underwriting that HOMEstead can’t fund it. Run the year-built filter on Zillow before you tour.

The second mistake is assuming Philadelphia residents can use HOMEstead. They can’t. Philadelphia County is excluded. Philly buyers route to Philly First Home instead, which is the city-level equivalent.

The third mistake is treating HOMEstead and K-FIT as interchangeable. They’re not. K-FIT has higher income limits ($196,200 borrower income), no county restrictions, no lead paint restriction, and 5% of purchase price with no dollar cap. HOMEstead has lower income limits, county exclusions, the 1978 rule, and a $10,000 cap. If your income is above 80% AMI for your county, you’re typically routed to K-FIT, not HOMEstead.

Next Steps With Lena

HOMEstead works for a specific buyer profile: moderate income, eligible county, post-1978 home, willing to use a PHFA Keystone Home Loan first mortgage. If that’s you, $10,000 of forgivable money is sitting on the table. The fastest way to know is a 15-minute call where I run your county, your income, and your target home year against current HOMEstead limits.

Frequently Asked Questions

Talk to Dynamic Funding Solutions

HOMEstead has tighter rules than K-FIT but pays out faster — five-year forgiveness instead of ten. If you’re under 80% AMI for your county and shopping post-1978 homes, this is the program. I’ll check your county and your income against current HOMEstead limits in 15 minutes.

Book a free 15-minute strategy call: calendly.com/lpolnet71/strategy_15min

Pennsylvania: (215) 364-7171
Florida: (561) 247-4888

Related reading: K-FIT: Keystone Forgivable in Ten Years | Mortgage Credit Certificate (MCC) | County Down Payment Assistance Programs

About the Author

Lena Polnet is a licensed Mortgage Loan Originator (NMLS #17225) with Dynamic Funding Solutions, serving home buyers across Pennsylvania and Florida. She specializes in PHFA loan products including HOMEstead, K-FIT, and Keystone Home Loan financing for moderate-income first-time buyers. Lena routinely funds HOMEstead loans in Bucks, Chester, Delaware, and Montgomery counties.

Legal Disclaimer

Dynamic Funding Solutions, NMLS #17144 | Lena Polnet, NMLS #17225 | Equal Housing Lender | Licensed in Pennsylvania and Florida.

This article is for informational purposes only and does not constitute a loan offer, commitment to lend, or financial advice. All loans are subject to credit approval, income verification, and property appraisal. Program terms, rates, limits, and availability are subject to change without notice. Consult a licensed mortgage professional regarding your specific situation.