Will a grant or down payment assistance work with a conventional loan?

This is the check list that Freddie Mac uses to help determine the answer:

  • The source of the secondary financing is a duly authorized authority or agency of the federal, state, local or municipal government; a nonprofit community or religious organization other than a credit union; the borrower’s employer; or a regional Federal Home Loan Bank under one of its affordable housing programs.
  • The source of the secondary financing is not the property seller or another interested party to the transaction.
  • The total loan-to-value (TLTV) ratio for the first lien and the secondary financing does not exceed 95 percent (105 percent for Home Possible Advantage first liens).
  • The proceeds from the secondary financing will be used for down payment assistance and/or payment of closing costs.
  • The secondary financing will not result in a priority lien.
  • The secondary financing is used with a first lien mortgage that meets the following requirements:
    • Fixed-rate mortgage or an ARM with an initial fixed-rate period of five years or greater.
    • Purchase transaction or a “no cash-out” refinance.
    • One- to 4-unit primary residence. www.FreddieMac.com.
  • The interest rate on the secondary financing is not more than 2 percent higher than the rate of the first mortgage.
  • The terms of the secondary financing do not require a balloon payment before the maturity or payment in full of the first lien mortgage.
  • The secondary financing is not a Home Equity Line of Credit.
  • The secondary financing’s interest accruals that are added to the principal do not increase the TLTV ratio beyond the maximum TLTV ratio allowed for the first lien mortgage at any time during the term of the first lien mortgage.

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