Section C. Borrower Secondary Financing Overview

1 HUD 5, Section C5-C-1 Section C. Borrower Secondary FinancingOverviewIn This SectionThis Section contains the topics listed in the table NameSee Page1 General Information on Secondary Financing5-C-22 Government Agency Secondary Financing5-C-43 Nonprofit Agency Secondary Financing5-C-74 Organizations and Private Individuals ProvidingSecondary Financing5-C-105 Family Member Secondary Financing5-C-126 Secondary Financing for Borrowers 60 Years ofAge or Older5-C-16 Chapter 5, Section CHUD General Information on Secondary FinancingIntroductionThis topic contains general information on Secondary Financing , including a definition of Secondary Financing Secondary Financing documentation requirements, and references for permissible sources of Secondary DateNovember 19, ofSecondaryFinancingAny Financing other than the first mortgagethat creates a lien against theproperty is considered Secondary Financing . Such Financing isnotconsidereda gift, even if it is a soft or silent second, or has other features forgivingthe : A soft or silent second is Secondary Financing with no monthlyrepayment lender must obtain from the provider of any Secondary Financing , andinclude in the endorsement binder documentation showing the amount of funds provided to the Borrower foreach transaction, and copies of the loan : FHA reserves the right to reject any Secondary Financing that does not serve the needs of the intended Borrower , or where the costs to the participant outweigh the benefits derived by theborrower.

2 Costs incurred for participating in a downpayment assistance secondaryfinancing program may only be included in the amount of the second on next pageHUD 5, Section C5-C-31. General Information on Secondary Financing , ofSecondaryFinancing(Reference)For more information on Secondary Financing from government agencies, see HUD Secondary Financing from nonprofit organizations, see HUD Secondary Financing from private individuals or other organizations, seeHUD 41551. Secondary Financing from family members, see HUD , and special arrangements for borrowers 60 years of age or older, see 5, Section CHUD Government Agency Secondary FinancingIntroductionThis topic contains information on government agency Secondary Financing ,including Secondary Financing from government agencies government agencies that can provide Secondary Financing government agencies holding or servicing second liens, and terms of Secondary Financing provided by government agencies 19, will insure a first mortgage loan on a property that has a secondmortgage or lien held by a federal, state, or local government monthly payments under the insured mortgage and second lien, plushousing expense and other recurring charges, cannot exceed the Borrower sability to on next pageHUD 5, Section C5-C-52.

3 Government Agency Secondary Financing , ThatCan ProvideSecondaryFinancingFederal, state, local government, and nonprofit agencies consideredinstrumentalities of government may provide Secondary Financing for theborrower s entire amount of required funds to close on a : For more information on acceptable government instrumentalities, see HUD refinancing loans with outstanding subordinate liens, see HUD cash out refinances with subordinate liens, see HUD streamline refinances with appraisals and subordinate liens, see , and streamline refinances without appraisals and with subordinate liens, seeHUD orServicingSecond LiensWhen Secondary Financing is provided by a government agency, thesecondary lien must be made or held by the eligible government body orinstrumentality. Government unitscannotuse agents, including nonprofit orfor-profit enterprises, to make the second lien, regardless of the source offunds. They can, however, be used to service the subordinate lien if regularlyscheduled payments are made by the : Even if funds used for Secondary Financing are from an acceptablesource, such asHUD HOME, a government unit, or an eligible nonprofitinstrumentality, the subordinate lienmustbe in the name of the eligible entity,such as the state county city, or eligible nonprofit on next pageChapter 5, Section CHUD Government Agency Secondary Financing , ofSecondaryFinancingProvided byGovernmentAgencies forPurchasesListed below are the policies for loans secured by Secondary and Conditions The FHA-insured first mortgage, when combined with any second mortgageor other junior lien from a government agency or nonprofit agencyconsidered an instrumentality of government, maynotresult in cash back tothe Borrower .

4 The FHA-insured first mortgagecannotexceed the FHA statutory limit forthe area where the property is located. The combined indebtedness of themortgagesmay, however, exceed the FHA statutory limit. The combined loan-to-value (LTV) ratio of all liens cannot exceed 100% ofthe cost to acquire the property. (Note: The cost to acquire the property isthe sales price plus Borrower -paid closing costs, discount points, repairs andrehabilitation expenses and prepaid expenses.) The cost to acquire may exceed the appraised value of the property underthese types of government assistance Monthly PaymentsThe required monthly paymentsfor both the FHA-insured first mortgage andthe second mortgage or lien, plus other housing expenses and all recurringcharges,cannotexceed the Borrower s reasonable ability to Application DisclosuresThe source, amount, and repayment terms must be disclosed in the mortgageapplication, and the Borrower must acknowledge that he/she understands andagrees to the 5, Section C5-C-73.

5 Nonprofit Agency Secondary FinancingIntroductionThis topic contains information on nonprofit agency Secondary Financing ,including Secondary Financing from nonprofit organizations Secondary Financing by a nonprofit agency considered an instrumentality ofthe government requirement for government unit that established the nonprofit agency HOC responsibilities for nonprofit agency approval, and Secondary Financing by an agency not considered an instrumentality of DateJanuary 31, NonprofitOrganizationsWith advance approval, FHA will insure a first mortgage loan on a propertythat has a second mortgage held by an approved nonprofit monthly payments under the insured mortgage and second lien, plushousing expense and other recurring charges, cannot exceed the Borrower sability to by aNonprofitAgencyConsidered anInstrumentalityof theGovernmentNonprofit agencies may provide Secondary Financing under the terms outlinedin HUD provided that they meet the criteria described in HUD , and are considered instrumentalities of the : To be considered an instrumentality of the government, the nonprofitentity must be established by a governmental body or with governmentalapproval or under special law to serve a particular public purpose ordesignated by law (statute or court opinion).

6 Continued on next pageChapter 5, Section CHUD Nonprofit Agency Secondary Financing , ThatEstablished theNonprofitAgencyFHA requires that the unit of government that established the nonprofit mustexercise either organizational control, operational control, or financial controlof the nonprofit agency in its entirety, or at a minimum, the specific Borrower assistance program that is using FHA scredit NonprofitAgencyApprovalThe appropriate Homeownership Center (HOC) is responsible, based oninformation submitted by the nonprofit, for approving the nonprofit agency determining if the agency can be considered an instrumentality ofgovernment, and reviewing applications from nonprofits that purport to be instrumentalitiesof : The HOC is also responsible for approving nonprofit agencies that arenotconsidered instrumentalities of : For information on approval of nonprofit agencies that arenotinstrumentalities of government,see HUD , and acceptable nonprofit government instrumentalities, see HUD on next pageHUD 5, Section C5-C-93.

7 Nonprofit Agency Secondary Financing , by aNonprofitAgency notConsidered anInstrumentalityof theGovernmentNonprofit agencies that are not considered instrumentalities of governmentmay provide Secondary Financing under the conditions described in provided that the agency meets the conditions described in HUD Borrower makes a downpayment of at least of the lesser of theappraised value or the sales price of the property amount of the insured first mortgage does not exceed the statutory loan limitfor the area where the property is located the combined loan-to-value (CLTV) ratio of the first and subordinate liensdoes not exceed the applicable FHA maximum loan-to-value (LTV) limitfor the area where the property is located, and FHA-insured first mortgage, when combined with any second mortgage orjunior lien from the nonprofit agency, may not result in cash back to : The jurisdictional HOC is responsible for approving these 5, Section CHUD Organizations and Private Individuals ProvidingSecondary FinancingIntroductionThis topic contains information on organizations and private individualsproviding Secondary Financing , including Secondary Financing from private individuals or other organizations repayment terms for Secondary mortgages from other organizations orprivate individuals, and repayment terms for Secondary Financing from other organizations orprivate DateNovember 19, PrivateIndividuals orOtherOrganizationsWith advance approval, FHA will insure a first mortgage loan on a propertythat has a second mortgage or lien held by an individual or a company,provided that the Secondary Financing is disclosed at the time of application the required minimum cash investment isnotfinanced the insured first mortgage doesnotexceed FHA mortgage limits the combined loan-to-value (CLTV)

8 Ratio of the first and subordinate liensdoes not exceed the applicable FHA loan-to-value (LTV) limit the Borrower can afford the total amount of the payments any periodic payments are level and monthly there is no balloon payment during the first ten years, and there is no prepayment on next pageHUD 5, Section C5-C-114. Organizations and Private Individuals ProvidingSecondary Financing , forSecondaryFinancingFrom OtherOrganizationsor PrivateIndividualsRepayment terms fora second mortgage from an organization or a privateindividual must notinclude a balloon payment before ten years (or other such termacceptable to FHA), unless the property is sold or refinanced, and permit repayment by the Borrower , without penalty, after giving the lender30 days advance forSecondaryLoansThe required monthly payment on both the FHA-insured first mortgage andthe second mortgage or lien plus other housing expenses and all recurringchargescannotexceed the Borrower s reasonable ability to periodic payments due on the second mortgage must be calculated as anequal monthly 5, Section CHUD Family Member Secondary FinancingIntroductionThis topic contains information on Secondary Financing provided by a familymember, including Secondary Financing from family members for purchase transactions assistance from family members on a property purchase Borrower as co-obligor on a note securing a borrowed downpayment, and terms and conditions for Secondary Financing provided by family DateNovember 19.

9 FamilyMembers forPurchaseTransactionsFHA permits lending from family members on a secured or unsecured basis,up to 100% of the Borrower s required funds to close. This may include thedownpayment, closing costs, prepaid expenses, and discount the loan from the family member, whether borrowed from an acceptablesource or the family member s own savings, is secured by the subjectproperty, only the family member provider may be the willnotapprove any form of securitization of the note that results in anyentityotherthan the family member being the noteholder, whether at loansettlement or at any time during the mortgage life : For a definition of the termfamily member, see HUD on next pageHUD 5, Section C5-C-135. Family Member Secondary Financing , FamilyMembers on aPropertyPurchaseFamily members may assist with the costs of acquiring a new home byproviding the Borrower with a the family member provider(s) may be the noteholder if the money lentis secured against the subject willnotapprove any form of securitization of a note that results in anentity other than the family member being the noteholder, whether atsettlement, or any time during the mortgage life asCo-Obligor ona Note Securinga BorrowedDownpaymentWhen the funds loaned by the family member are borrowed from anacceptable source, the Borrower maynotbe a co-obligor on the.

10 A son may not be the co-obligor on the note used to secure themoney borrowed by his parents which, in turn, was loaned to theson for thedownpayment on the on next pageChapter 5, Section CHUD Family Member Secondary Financing , andConditions forSecondaryFinancingProvided byFamilyMembers forPurchasesThe table below describes additional policies regarding the terms andconditions for FHA-insured loans with Secondary Financing provided byfamily DescriptionMaximum insurable mortgageThe maximum insurable mortgage amount isnotaffectedby loans from family loan-to-value (CLTV)limit on financingThe combined loan-to-value (CLTV) limit on financingmay not exceed 100% of the lesserof the property s appraised value, or sales price, plus normal closing costs, prepaid expenses, and cash backA family member may lend 100% of the Borrower srequired funds to close, but cash back to the Borrower atclosing (beyond the refund of any earnest money deposit) Financing paymentsIf periodic payments of the Secondary Financing arerequired, the combined payments may not exceed theborrower s reasonable ability to : The Secondary Financing payments must beincluded in the total debt to income ratio ( the backend ratio) for qualifying lien balloon paymentsThe second lien maynotprovide for a balloon paymentwithin five years from the date of on next pageHUD 5, Section C5-C-155.