Posted 12/27/2016

Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol.

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Community Second Mortgages For Down Payment And Closing Costs

community second mortgages

Gina Pogol

The Mortgage Reports Contributor

Finance Your Down Payment And Closing Costs With Community Second Mortgages

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.

Verify your low down payment loan eligibility (Nov 23rd, 2017)

Down Payment Assistance And Closing Costs

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:

  • You may make monthly fixed monthly payments until the loan is repaid.
  • You may be allowed to defer (put off) repayment for some period. Then, you make fixed monthly payments until the loan is repaid.
  • You may not have to make payments at all. The loan is only repaid if you sell the property.
  • You may not have to repay the loan if you remain in your home for a specified number of years.

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.

Who Is Eligible For Community Second Mortgages?

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.

Verify your low down payment loan eligibility (Nov 23rd, 2017)

Example: North Carolina

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.

Example: San Francisco

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.

Finding Your Program

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.

What Are Today's Mortgage Rates?

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.

Verify your low down payment loan eligibility (Nov 23rd, 2017)

Gina Pogol

The Mortgage Reports Contributor

Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol.

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.

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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)