Secondary Financing Guidelines

FHA Secondary Financing Guidelines

Any financing provided by the lender, other than those where the property has a FHA insured first mortgage and creates a lien against the property is considered as secondary financing. It is not considered as a gift even if it is soft or silent with no monthly repayment provisions or that has other features forgiving debt. The documentation that is done by the provider who does the secondary financing must show the loan amount that was provided to the borrower in every transaction, and also; the loan instrument copies will have to be included in the endorsement binder.

The costs that are incurred for participating in assistance for down payment of the secondary financing program will be included only as a second lien. The FHA reserves all rights to approve or reject any secondary financing that do not serve the needs of the intended borrower. The FHA also would weigh its options where it believes that the costs to the participants outweigh those benefits that are to be derived by the homebuyer.

The various permissible secondary financing arrangements include:

• Federal, state, and local government agencies that also includes city funded programs
• Any non-profit agency that is considered as Instrumentalities of government, which have received the official approval status from the FHA. Such non-profit agencies will be listed as approved non-profit in the HUD website, if they are not listed in this website then that non-profit agency is not approved to provide any subordinate financing to the borrower.
• The non-profit organization that is not listed in the website could still be allowed to provide a gift or grant to the borrower, if they have an Tax ID number showing that it meets the IRS requirements for getting tax exempt status, and they shall provide a gift or grant, and it would be listed as a gift in the application and there will be no lien placed on the property and it cannot be repaid.

Other private organizations or individuals can also provide secondary financing, but will have to do so after the borrower makes a payment of three percent cash investment. The organizations and individuals are:

• Government agency, non-profit organizations
• Family members could provide secondary mortgage to the borrower that may be secured or unsecured. In case of repayment of a loan, it should meet the HUD restrictions and guidelines.