What Is a Community Seconds Mortgage?
If you want to get a home loan through Fannie Mae, but you don’t have a lot of cash to use for a down payment, a community seconds mortgage could be a great option. A community seconds mortgage is a subordinate, or second, mortgage that is used in combination with a Fannie Mae loan to finance the down payment on a home. While community seconds mortgages are not owned by Fannie Mae, the organization does provide specific requirements for this kind of secondary loan.
Community Seconds Eligibility Requirements
First off, let’s cover who can provide a community seconds mortgage. According to Fannie Mae, funds need to be provided by:
Federal agencies
Municipalities
State or county governments
State or local housing finance agencies
Nonprofit organizations
A regional Federal Home Loan Bank under one of its affordable housing programs
A Native American tribe or its sovereign instrumentality
Employers
Since community seconds loans are offered by various organizations, many of them differ in their exact eligibility requirements. Despite that, most community seconds loans have income limits, typically set at 120% of the AMI (area median income).
In addition, community seconds mortgages can be used with all standard Fannie Mae home loans (not community lending products), and can also be used with HomeReady loans. Despite that, there are certain restrictions, so if you’re interested in using a community seconds mortgage, you should check with Fannie Mae to confirm your loan eligibility.
LTV Requirements for Community Seconds Mortgages
Unlike most other kinds of loans, community seconds mortgages actually allow a loan-to-value (LTV) ratio of over 100%. Specifically, they permit an LTV of up to 105% for the combined loans. Plus, borrowers are not restricted to taking out only one community seconds mortgage. They can have two, as long as the combined loan-to-value (CLTV) still does not exceed 105%.
Deferred Repayments for Community Seconds Mortgages
While some types of community seconds loans are repaid monthly, just like a typical mortgage, not all work that way. Other repayment options may include a deferred repayment, which can allow borrowers to put off paying their loan for a certain period, and a zero payment option loan, which only needs to be paid back if and when a borrower decides to sell their home. Another type of zero payment community seconds loan may allow a borrower to pay nothing back if they stay in their home for a specific number of years. In addition, many community seconds mortgages have a 0% interest rate, which is just another juicy benefit of this helpful home ownership assistance program.