How Community Mortgages Work

If you haven’t saved thousands for a down payment and closing costs, Community Seconds and Affordable Seconds, two mortgage programs, can help close the gap. Both allow low and moderate income homebuyers to finance these costs instead of paying them up front.

What is a Community Seconds or Affordable Seconds mortgage?

Fannie Mae’s Community Seconds and Freddie Mac’s Affordable Seconds are second mortgage programs that can help you to buy a house if you don’t have a lot of money saved. These second mortgages are used in conjunction with a first mortgage, such as a HomeReady or Home Possible mortgage, and can be used to pay down a home down payment, closing costs, renovations, and home improvement. other initial expenses. With the combination of the two mortgages, buyers don’t have to put anything on the purchase.

The funding, however, does not come from Fannie Mae or Freddie Mac. Instead, it comes from a public or private source, such as:

  • Federal agencies
  • Municipalities, counties or the state
  • Local or state housing finance authorities
  • Non-profit organizations (not credit unions)
  • Federal regional mortgage banks
  • Native American tribes recognized by the federal government
  • Employers

The repayment of the second mortgage can be structured in different ways and depends on the program. Some acceptable means include:

  • Fixed monthly payments
  • Deferred payments for a time, then fixed monthly payments
  • Deferred payments for the life of the loan (unless the house is sold)

In the case of a grant or similar source of funds, the second mortgage could instead be canceled after a certain period of time.

Who is eligible for Community Seconds or Affordable Seconds mortgages?

Homebuyers interested in these programs should purchase a home to use as a primary residence, not a second home or investment property.

Depending on the funding source, buyers might also be subject to income thresholds or other requirements, such as a home buyers education course or, in the case of an employer program, some time spent with the business or organization.

Community seconds and affordable seconds requirements

Each organization offering Community Seconds and Affordable Seconds funding has their own specific program criteria, informed by guidelines from Fannie Mae and Freddie Mac. These guidelines include:

Community seconds

  • Combined loan to value ratio (CLTV) for first and second mortgages can go up to 105 percent.
  • The first mortgage can be a fixed rate or an adjustable rate loan, as long as the adjustable rate loan has an initial fixed rate term of at least five years.
  • The second mortgage can finance the down payment, closing costs, renovations, or a permanent interest rate buyout (paying points).
  • The interest rate on the second mortgage (if there is one) cannot be more than two percentage points higher than the rate on the first mortgage.
  • The second mortgage cannot be funded through “premium pricing,” which means the borrower cannot pay a higher interest rate on the first mortgage to get credit at closing. (Some housing finance agencies, however, are exempt from this limitation.)

Affordable seconds

  • The CLTV for first and second mortgages can be up to 105% if the first mortgage is a Home Possible or HomeOne loan. The CLTV can go up to 95% if the first mortgage is a conventional loan.
  • The first mortgage can be a fixed rate or an adjustable rate loan, as long as the adjustable rate loan has an initial fixed rate term of at least five years.
  • The second mortgage can finance the down payment or closing costs.
  • The interest rate on the second mortgage (if there is one) cannot be more than two percentage points higher than the rate on the first mortgage.

Community seconds and affordable seconds: advantages and disadvantages

Advantages The inconvenients
  • Accelerates the path to homeownership for those who don’t have a lot of savings
  • Can borrow all or part of the down payment, closing costs and other expenses
  • May be able to defer payments or have second mortgage debt canceled over time, depending on the program
  • A second mortgage is added to your total debt and interest costs (unless the debt is canceled over time)
  • Potential for a larger total monthly payment
  • Cannot be used for a second home or investment property

Other down payment assistance options

Community Seconds and Affordable Seconds are financing options that can help you buy a home sooner if your savings are limited. However, there are other down payment assistance programs you may also be eligible, particularly if you are a first-time buyer (which usually means you haven’t owned a home in the past three years). Start with the US Department of Housing and Urban Development state search, where you can check the assistance programs of your local housing authority.

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