Community second mortgages allow eligible homebuyers to finance their down payments, closing costs and even home improvements.
They are offered by states, counties, local housing agencies, nonprofit organizations or Employer Assisted Mortgage (EAM) programs.
If you qualify, Fannie Mae and Freddie Mac allow you to finance over 100 percent of your home's purchase price.
They do this by combining one of their first mortgages (including HomeReady and Home Possible) with a second mortgage.
The Fannie Mae program is called Community Seconds, and the Freddie Mac option is called Affordable Seconds.Click to see today's rates (Mar 28th, 2017)
Community second mortgages allow eligible homebuyers to buy houses with no out-of-pocket down payment or closing costs.
Repayment may be structured in several ways:
If repayment is deferred for five years or more, the second mortgage payment is not counted when the lender calculates your debt-to-income ratio.
Community second mortgages are offered by many sources.
According to the OCC (United States Office of the Comptroller of the Currency), most EAM programs have some income-eligibility. Commonly, it's 120 percent of the Area Median Income, or AMI.
They may be limited to first-time buyers, and require some form of homebuyer education or counseling.
Every loan has its own requirements, so once you find the down payment and closing cost programs for your area, you'll need to get their specific guidelines.Click to see today's rates (Mar 28th, 2017)
North Carolina's Community Partners Loan Pool, for example, provides up to 20 percent of the purchase price for homebuyer assistance. Repayment is deferred, and the interest rate is zero.
To be eligible, buyers' income cannot exceed 80 percent of the AMI for their county.
To qualify, the borrower's FICO score must be at least 640. The new mortgage PITI payment (principal, interest, taxes, and insurance) cannot exceed 32 percent of the borrower's gross (before-tax) income.
So a borrower in Franklin County, with a two-person household, would have an income limit of $4,087.50 per month. The maximum PITI mortgage payment at that income would be $1,308.
San Francisco is a very expensive city in which to buy or rent. It's City Second Loan Program is designed to help buyers with down payments and closing costs.
The interest rate is zero, and repayment is deferred. You pay only if you rent out or sell the property.
Only properties in certain communities (the program maintains a list on its Web site) can be financed under this program. Maximum second mortgage loan amount is $375,000.
Borrower income cannot exceed 120 percent of the AMI for San Francisco. For 2016, that's $103,400 a year for a two-person household. (Guidelines for 2017 have not yet been released.)
This program does require the buyer to make a down payment of five percent. Grants or gifts can equal 2.5 percent, and 2.5 percent must come from the borrower's own funds.
You can see from the above examples that these second mortgage programs can be very different.
An online search for "community second mortgage in (your city, county or state)" will bring up programs offered by your local housing departments.
You can also search HUD's State Pages. Click your state, then "Homeownership Assistance," and a you'll get a list of links and contact information for many programs.
Mortgage rates for home loans with Community Seconds or Affordable Seconds are still very low. Combining the two mortgages can get you into a home you can afford with little or nothing out-of-pocket.Click to see today's rates (Mar 28th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Thomas D. Software Developer
As a first time home buyer, The Mortgage Reports has been the only voice that I can trust, and the expertise has been helpful.
The Mortgage Reports is invaluable. It's our primary source for information on housing finance.
Mohammed Y. Retired
The Mortgage Reports is informative and I read it daily. I am grateful for the knowledge I have gained.
2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)