HUD HOC Reference Guide

Secondary Financing by Nonprofits

Chapter 2
Mortgage and Credit Guidelines
Page 2-05

Non-profit agencies NOT considered an instrumentality of government can provide secondary financing, but the borrower is required to make a down payment of at least 3.5% of the lesser of the appraised value or the contract sales price. Funds from the secondary financing cannot be used for any portion or the minimum 3.5% down payment. 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.

Documentation from the provider of financing must reflect 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: HUD Handbook 4155.1, Section 5.C and ML 11-38.

Content Archived: November 5, 2012