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6. Family Member Secondary Financing

Change Date

May 10, 2009


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5.C.6.ee. Additional Polices Regarding Financing Terms and Conditions

The table below describes additional policies regarding the various financing terms and conditions for loans secured with family member secondary financing.

Financing Category Policy Description

Maximum insurable mortgage

The maximum insurable mortgage amount is not affected by loans from family members.

Combined financing amount

The combined amount of financing may not exceed 100 percent of


  • the lesser of the property's
    • appraised value, or
    • sales price, plus
  • the normal closing costs, prepaid expenses, and discount points.

Borrower cash back

While a family member may lend 100 percent of the borrower funds to close requirement, cash back to the borrower at closing (beyond the refund of any earnest money deposit) is not permitted.

Secondary financing payments

If periodic payments of the secondary financing are required, the combined payments may not exceed the borrower's reasonable ability to pay.


Note: The secondary financing payments must be included in the total debt to income ratio (that is, the "back end" ratio) for qualifying purposes.

Second lien balloon payments

The second lien may not provide for a balloon payment within five years from the date of execution.

Family member supplying borrowed funds

If the family member providing the secondary financing borrows the funds, the lending source may not be an entity with an identity-of-interest in the sale of the property, such as


  • the seller
  • a builder
  • the loan officer, or
  • the real estate agent.

Mortgage companies that have retail banking affiliates may have that entity loan the funds to the family member. However, the terms and conditions for the loan that will be used for the secondary mortgage cannot be more favorable than it would be for other borrowers.


Example: There may not be any special consideration given between

  • the making of the mortgage, and
  • the lending of funds to family members to be used for secondary financing for the purchase of the home.

Secondary financing document retention

An executed copy of the document describing the terms of the secondary financing must be maintained in the lender's file. An executed copy must also be provided in the endorsement binder.

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