Secondary Financing by Non-Profits

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Non-profit agencies that are not considered an instrumentality of government can provide secondary financing, but the borrower is required to make a cash investment of at least 3% of the contract sales price. The combined first and second mortgages cannot exceed the statutory loan limit for the area where the property is located. Also, the non-profit must be approved by the HOC within the jurisdiction of the non-profit agency. Any financing that creates a lien against the property is considered secondary financing (not a gift) even if it is a "soft" second or has other features resulting in the ultimate forgiving of the debt. Documentation from the provider of a down payment assistance secondary financing must show the amount of funds provided to the borrower in each transaction, and the loan instruments must to be included in the endorsement binder. Costs incurred for participating in a down payment assistance secondary financing program may not be included as closing costs in the first mortgage, but may be included in the secondary financing.

Please see:24CFR 203.19(a)(1) and HUD Handbook 4155.1, Rev-4, CHG-1, Paragraph 1-13a