Borrower Secondary Financing - HUD

Nov 19, 2010 - Note: A “soft” or “silent” second is secondary financing with no .... that has a second mortgage or lien held by an individual or a company,.
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HUD 4155.1

Chapter 5, Section C

Section C. Borrower Secondary Financing Overview

In This Section

This section contains the topics listed in the table below. Topic 1 2 3 4 5 6

Topic Name General Information on Secondary Financing Government Agency Secondary Financing Nonprofit Agency Secondary Financing Organizations and Private Individuals Providing Secondary Financing Family Member Secondary Financing Secondary Financing for Borrowers 60 Years of Age or Older

See Page 5-C-2 5-C-4 5-C-7 5-C-10 5-C-12 5-C-16

5-C-1

Chapter 5, Section C

HUD 4155.1

1. General Information on Secondary Financing

Introduction

This topic contains general information on secondary financing, including  a definition of secondary financing  secondary financing documentation requirements, and  references for permissible sources of secondary financing.

Change Date

November 19, 2010

4155.1 5.C.1.a Definition of Secondary Financing

Any financing other than the first mortgage that creates a lien against the property is considered secondary financing. Such financing is not considered a gift, even if it is a “soft” or “silent” second, or has other features forgiving the debt. Note: A “soft” or “silent” second is secondary financing with no monthly repayment provisions.

4155.1 5.C.1.b Secondary Financing Documentation Requirements

The lender must obtain from the provider of any secondary financing, and include in the endorsement binder  documentation showing the amount of funds provided to the borrower for each transaction, and  copies of the loan instruments. Notes:  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 the borrower.  Costs incurred for participating in a downpayment assistance secondary financing program may only be included in the amount of the second lien. Continued on next page

5-C-2

HUD 4155.1

Chapter 5, Section C

1. General Information on Secondary Financing, Continued

4155.1 5.C.1.c Permissible Sources of Secondary Financing (Reference)

For more information on  secondary financing from government agencies, see HUD 4155.1 5.C.2  secondary financing from nonprofit organizations, see HUD 4155.1 5.C.3  secondary financing from private individuals or other organizations, see HUD 41551. 5.C.4  secondary financing from family members, see HUD 4155.1 5.C.5, and  special arrangements for borrowers 60 years of age or older, see HUD 4155.1 5.C.6.

5-C-3

Chapter 5, Section C

HUD 4155.1

2. Government Agency Secondary Financing

Introduction

This 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 for purchases.

Change Date

November 19, 2010

4155.1 5.C.2.a Secondary Financing From Government Agencies

FHA will insure a first mortgage loan on a property that has a second mortgage or lien held by a federal, state, or local government agency. The monthly payments under the insured mortgage and second lien, plus housing expense and other recurring charges, cannot exceed the borrower’s ability to repay. Continued on next page

5-C-4

HUD 4155.1

Chapter 5, Section C

2. Government Agency Secondary Financing, Continued

4155.1 5.C.2.b Government Agencies That Can Provide Secondary Financing

Federal, state, local government, and nonprofit agencies consider