Loans with Secondary Financing

This option is typically used by borrowers looking to put less money down without having to pay for private mortgage insurance (PMI). Programs like an 80/15 where a first mortgage covers 80%, a second mortgage covers 15%, and the homeowner puts 5% down are very typical.

Freddie Mac allows for secondary financing with several loan programs. With secondary financing, a borrower is able to get a lower rate on their first mortgage and usually avoids the requirement of  mortgage insurance.

For the loans with secondary financing, the property types include 1-4 unit primary residences, 2nd homes and 1-4 unit investment properties. The transaction types are purchase and no cash-out refinances. The eligible mortgage products are the following:

• First mortgage of up to the maximum eligible loan limit
• Fixed rate mortgages
• ARMs
• Balloon/reset mortgages

Eligibility for secondary financing varies by mortgage product type.

Home possible mortgages with a TLTV up to 105% when the secondary financing is an affordable second.

Freddie Mac does not purchase second mortgage products.

Terms of secondary financing may provide for a variable interest rate if the interest rate of the first lien mortgage is fixed and both of the following conditions are met:

• The monthly payment must remain constant for each 12-month period over the term of the junior lien
• The change in monthly payment at the end of each 12-month period cannot represent more than 1% increase in interest rates

There are also advantages for loans with secondary financing for both the lender and the borrower. The lender is able to provide higher TLTV loans while the borrower will have lower monthly payments.