Loans · Fannie Mae Selling GuideDown payment assistance second mortgages: how Fannie Mae treats a Community Second

Many down payment assistance programs lend the money as a second mortgage. Fannie Mae calls this a Community Seconds loan – subordinate financing originated under an affordable housing program – and buys the first mortgage that goes with it (Selling Guide B5-5.1). The second must come from an eligible provider: a federal agency, state, county or city, a housing finance agency, a 501(c)(3) nonprofit, a Federal Home Loan Bank affordable housing program, the borrower's employer, a lender for an employer-guaranteed program, or a federally recognized Indian tribe – never the property seller or another interested party, except in shared equity or sweat equity programs. It can pay all or part of the down payment (as long as it isn't funded through the first mortgage, such as by premium pricing), closing costs, renovations or a permanent rate buydown, or it can secure a subsidized sales price. The first mortgage must be fixed-rate or an ARM with an initial fixed period of five years or more, the deal must be a purchase or limited cash-out refinance of a one- to four-unit principal residence, and the combined loan-to-value can go up to 105%. On a one-unit home the buyer needs none of their own money; on two to four units above 80% LTV, 5% must come from the buyer first. The second's mortgage must be clearly subordinate, and the first lienholder must be able to foreclose free and clear of it. If repayment is deferred five years or more, its payment is left out of the debt-to-income ratio. When repayment is required, the second can't mature or balloon before the earlier of 15 years after the first's note date or the first's maturity, and it must be fixed-rate, no more than 2% above the first mortgage's initial rate.