down payment help

Community Seconds

QUICK SUMMARY

Community Seconds is Fannie Mae's name for a subordinate lien from an allowed housing agency, nonprofit, employer, or similar source, used with a first mortgage Fannie Mae will buy. It is the guideline box that lets a second lien help with the down payment or closing costs without breaking the first-lien sale. Other investors have their own names for the same idea.

A Community Seconds loan is a second mortgage, usually from a government agency, housing finance agency, nonprofit or employer, that helps pay your down payment or closing costs, and that sits behind a conventional first mortgage sold to Fannie Mae. Fannie Mae sets the rules in Selling Guide B5-5.1-02. The key points: the provider must be an eligible public or nonprofit source, not the seller; the combined loan-to-value can go up to 105 percent; and the first mortgage must be a fixed rate or an ARM with an initial fixed period of five years or more (Fannie Mae B5-5.1-02). Many down payment assistance seconds are structured to fit this standard.

Who can provide a Community Second

Fannie Mae limits providers to specific entities, including:

A federal agency, a state, county or similar political subdivision, or an incorporated city or town.
A housing finance agency.
A 501(c)(3) nonprofit organization.
A regional Federal Home Loan Bank under an affordable housing program.
An employer, for its employees.
A lender, only for an employer-guaranteed Community Seconds loan in its affordable housing program.
An Indian tribe on the federal list.

The provider must not be the seller or another interested party in the transaction, except in shared equity or sweat equity programs. A second funded by the seller for one sale is not a Community Second. It is treated as a seller contribution.

What the money can be used for

All or part of the down payment, as long as it is not funded through the first mortgage, such as through premium pricing.
Closing costs.
Renovations, including energy improvements.
A permanent interest rate buydown.

Some Community Seconds do not advance cash at all. They record the difference between market value and a reduced sales price as a subsidy, often deferred and forgivable, with resale requirements.

Other eligibility requirements

Combined loan-to-value. Up to 105 percent with a Community Second, unless the first mortgage has its own lower cap. See loan-to-value and Fannie Mae B2-1.2-02.
Loan purpose. Purchase or limited cash-out refinance only. On a refinance, the second's holder must sign and record a resubordination agreement.
Property and occupancy. A one- to four-unit principal residence.
Repayment terms. The guide sets rules on payment structure and other terms. Your lender checks the second's note against them.

Freddie Mac has a similar standard called Affordable Seconds (Freddie Mac).

Texas notes

In Texas, state programs from TDHCA and TSAHC offer down payment assistance in several forms, including deferred or forgivable second liens and grants, depending on the program (TDHCA; TSAHC). Each program has its own income, price and lender participation rules, and funding changes. See down payment assistance in Texas and TDHCA My First Texas Home. Whether a particular second qualifies as a Community Second is checked on the actual program documents, not assumed.

Fictional example

Fictional example: a buyer uses a conventional fixed-rate first mortgage and a deferred second lien from a state housing agency for part of the down payment. The first mortgage loan-to-value fits its own limit, and the two loans together come in under 105 percent of value. The lender reviews the second's note, confirms the agency is an eligible provider and that no part of the second is funded by the seller or by premium pricing on the first, and includes the second in the combined ratio. Both liens are recorded and disclosed.

Common mistakes

Assuming any second lien from any lender qualifies.
Calling a Community Second a grant. It is a lien, even if it may be forgiven. Compare with grants.
Ignoring the second's terms on resale or refinance.
Thinking it is a Texas-only program. It is a Fannie Mae standard used nationwide.

Next step

If you are looking at a down payment assistance second, I can check how it fits with the first mortgage before you commit to a program. Book a call, or start an application.

Sources

Links checked Oct 21, 2026.

Fannie Mae Selling Guide, B5-5.1-02 Community Seconds Loan Eligibility (topic dated May 3, 2023; Guide published Oct 7, 2026): https://selling-guide.fanniemae.com/sel/b5-5.1-02/community-seconds-loan-eligibility
Fannie Mae Selling Guide, B2-1.2-02 Combined Loan-to-Value Ratios (Dec 4, 2018): https://selling-guide.fanniemae.com/sel/b2-1.2-02/combined-loan-value-cltv-ratios
Freddie Mac Affordable Seconds, product page (Guide 4204.2) (retrieved Oct 21, 2026): https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/affordable-seconds
TDHCA, Texas Homebuyer Program overview (retrieved Oct 21, 2026): https://welcomehome.tdhca.texas.gov/programs
TSAHC, Down payment assistance (retrieved Oct 21, 2026): https://www.tsahc.org/homebuyers-renters/loans-and-down-payment-assistance/

About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.

Equal Housing Opportunity.

Last reviewed: Oct 2026

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