Eligibility guidelines for using Community Seconds primarily focus on income limits (often below 120% of the Area Median Income), creditworthiness, and property type (typically a 1-4 unit primary residence). These second-lien loans, provided by state and local housing agencies, nonprofits, or employers, help cover down payments and closing costs. Programs may also require first-time homebuyer status or homebuyer education, aiming to make homeownership accessible for low-to-moderate income individuals.
What Are Community Seconds?
Community Seconds® are second mortgages designed to supplement a first mortgage loan—typically from Fannie Mae, Freddie Mac, or a housing finance agency (HFA). They’re usually:
- Forgivable, deferred, or low-interest
- Structured with no monthly payments
- Funded by state HFAs, city governments, nonprofit housing groups, or employer benefit programs
They’re ideal for buyers who qualify for a home loan but lack sufficient funds for the upfront costs of buying a home.
General Eligibility Criteria for Community Seconds
While every program has unique requirements, most share several core eligibility factors. Understanding these early can help you determine if you’re a strong candidate—and what steps you may need to take to qualify.
1. First-Time Homebuyer Status
Most Community Seconds programs prioritize first-time homebuyers, which is typically defined as:
- Someone who has not owned a home in the past 3 years
This status resets after that 3-year window, so even previous homeowners can qualify again if enough time has passed.
Tip: Some programs offer exceptions for displaced homemakers, single parents, or buyers in designated target areas.
2. Owner-Occupancy Requirement
To qualify for a Community Seconds loan, the property must be your primary residence. That means:
- You must live in the home within a set period after closing (often 60 days)
- You cannot use Community Seconds for investment or vacation properties
Why this matters: These programs are designed to promote stable, long-term homeownership—not speculative investing.
3. Income Limits
Most Community Seconds programs are targeted toward low- to moderate-income buyers, with income thresholds based on Area Median Income (AMI).
How It Works:
- Many programs cap eligibility at 80% to 120% of AMI, depending on location and household size.
- In high-cost areas, some programs extend up to 150% of AMI.
- Income includes all borrowers and non-borrowing spouses in the household, depending on program rules.
Example:
In a metro area where AMI is $90,000:
- You may qualify if your income is under $72,000 (80% of AMI)
- Other programs may allow up to $108,000 or more (120% of AMI)
Note: Always check the latest income limits from your local housing finance agency, as these adjust annually.
4. Credit Score and Debt-to-Income (DTI) Ratio
While credit and DTI standards are usually more flexible than those for standard mortgage loans, most programs still have minimum thresholds.
Typical Requirements:
- Minimum credit score: 620 to 660
- Maximum DTI ratio: Usually between 43% and 50%
Some programs may allow lower scores or higher DTI with compensating factors such as:
- Steady employment
- Low housing expense ratio
- Large cash reserves
- Completion of homebuyer education
Pro Tip: If your score is below 620, ask about programs that accept non-traditional credit (like rental history or utility payments).
5. Homebuyer Education Certificate
Most Community Seconds programs require buyers to complete HUD-approved homebuyer education before closing.
Purpose:
- Educates buyers on budgeting, credit, home maintenance, and responsibilities of ownership
- Reduces delinquency and foreclosure risk
- Often mandatory for program eligibility
These classes are offered online or in person and typically take 6–8 hours to complete.
6. Property Type and Price Limits
To qualify, the home must meet program requirements in terms of:
- Type: Single-family home, condo, or townhouse; some allow duplexes or manufactured homes
- Purchase price: Programs often impose a cap based on local affordability standards
- Condition: The home may require an appraisal or inspection to confirm it’s safe and habitable
Example: A program might limit purchase prices to $400,000 in a county where the median home price is $450,000.
7. Location-Based Criteria
Some Community Seconds are limited to buyers purchasing in specific geographic areas, such as:
- Targeted census tracts
- Urban renewal zones
- Rural revitalization areas
Others offer enhanced benefits (e.g., higher assistance amounts or forgiveness terms) in locations facing housing shortages or historical inequity.
8. Special Populations and Professions
Many state and local programs offer dedicated Community Seconds loans for:
- Veterans and military families
- Educators and school employees
- Healthcare workers
- First responders
- People with disabilities
These programs may include:
- Higher assistance amounts
- Forgivable loans with shorter terms
- Looser credit/income requirements
9. Primary Loan Must Qualify
You must also qualify for an eligible first mortgage, such as:
- Fannie Mae HomeReady or Freddie Mac Home Possible
- FHA, VA, or USDA loans (in some cases)
- State HFA loans (such as NJHMFA, CHFA, or TSAHC)
The primary lender must approve the layered structure and verify that total combined loan-to-value (CLTV) does not exceed 105%, per most agency guidelines.
Real-World Qualification Example
Sarah, a teacher in Colorado, wants to buy her first home:
- Annual income: $62,000
- Credit score: 680
- DTI: 41%
- Home price: $325,000
- Location: Within a CHFA target area
Sarah qualifies for a:
- $291,000 CHFA first mortgage (97% LTV)
- $9,750 CHFA forgivable Community Seconds (3%)
- Must complete homebuyer education and occupy the home as her primary residence for 5 years
Result: Sarah buys with no down payment and avoids PMI through HFA benefits.
Final Thoughts
Community Seconds can make homeownership possible for millions—but they aren’t one-size-fits-all. Knowing the eligibility criteria ahead of time will help you:
- Plan your buying journey strategically
- Work with the right lender and program
- Avoid unexpected disqualification or repayment triggers
