HUD HOC Reference Guide

Secondary financing is any type of financing that creates a lien against the property, even if it is a "soft" or silent second or has other features resulting in the ultimate forgiving of the debt, they are not gifts.

The sum of all liens cannot exceed 100% of the cost to acquire the property. "Cost to acquire" is defined as sales price plus borrower paid closing costs, discount points, repair and rehabilitation expenses, and prepaid expenses. It does not include buy-downs costs, payment of personal debts, or unallowable closing costs (such as the tax service fee). Lenders approving secondary financing loans from federal, state, and local governmental agencies, as well as non-profit agencies considered instrumentalities of government, that are using unique community financing programs should consult their HOC for any individual guidance.

Please see: HUD Handbook 4155.1, Section 5.C; , & ML 2010-42