How to Get Your Down Payment and Closing Costs Paid For You

Buyers can finance their 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.

This type of assistance may be offered by states, counties, local housing agencies, nonprofit organizations or Employer Assisted Mortgage (EAM) programs.

Subject to qualification, Fannie Mae and Freddie Mac allow buyers to finance over 100 percent of your home's purchase price.  They do this by combining the first mortgages with a second mortgage (this loan arrangement will work with HomeReady and Home Possible programs).

The Fannie Mae program is called Community Seconds, and the Freddie Mac option is called Affordable Seconds.

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:

  • they may make monthly fixed monthly payments until the loan is repaid.
  • they may be allowed to defer (put off) repayment for some period. Then, you make fixed monthly payments until the loan is repaid.
  • they may not have to make payments at all. The loan is only repaid if you sell the property.
  • they 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 the debt-to-income ratio (DTI).

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 requirements. With regard to income, generally, no more than 120 percent of the Area Median Income (AMI).  As it concerns credit scores, no lower than a 640.  Further, buyers must qualify in the usual manner as it relates to job stability, income sources etc.

The assistance may be limited to first-time buyers, and require some form of homebuyer education or counseling.

Every loan has its own requirements, so once the down payment and closing cost programs have been located in the buyers’ area, attention must be paid to the specific guidelines.

Finding Your Program

These second mortgage programs requirements can vary from county to county of state to state.

An online search for "community second mortgage by city, county or state will bring up programs offered by local housing departments.

HUD’s State pages may also have some resources.  Select State, then "Homeownership Assistance," and a list of links and contact information for many programs will be generated.

Mortgage rates for home loans with Community Seconds or Affordable Seconds are still very low. Combining the two mortgages can get a buyer into a home they can afford with little or nothing out-of-pocket.  These programs take time, so preparation and an early start is the key.  ** Funds are subject to availability.

This year, let’s be creative and continue to help our buyers get the best of what’s available to them.