Loans · Fannie Mae Selling GuideA seller second mortgage behind a conventional loan: what Fannie Mae allows

Sometimes a seller agrees to carry part of the price as a second mortgage behind the buyer's new first mortgage, or the buyer takes a second loan from another lender. Fannie Mae buys first mortgages on properties with subordinate financing (Selling Guide B2-1.2-04) if the second lien is evidenced by a promissory note, reflected in a recorded mortgage or deed of trust, and clearly subordinate to the first. The lender must disclose the second and its repayment terms to Fannie Mae, the appraiser and the mortgage insurer, and every lien on the property counts in the combined loan-to-value (CLTV). Acceptable seconds have regular payments that at least cover the interest – no negative amortization – and charge a market interest rate. If seller financing carries a rate more than 2% below current standard rates for second mortgages, it is treated as a sales concession and its amount is deducted from the sales price. Unacceptable terms include negative amortization and a balloon or maturity less than five years after the first mortgage's note date unless the second fully amortizes with level payments – though Fannie Mae accepts these when the second is minimal relative to the borrower's assets or credit. A variable-rate second other than a HELOC must keep the payment constant for each 12-month period. An agreement to share future appreciation with a third party isn't allowed unless it qualifies as a Community Seconds loan. Employer seconds have their own, looser rules.