source:
  type: guide
  id: fnma-sel-b5-5.1-02
  authority: Fannie Mae Selling Guide B5-5.1-02 — Community Seconds Loan Eligibility
  description: Fannie Mae Selling Guide B5-5.1-02 — Community Seconds Loan Eligibility.
  coverage_tier: operative
obligations:
- id: fnma-sel-b5-5.1-02-full
  canonical_id: fnma-sel-b5-5.1-02-full
  section: Fannie Mae Selling Guide B5-5.1-02 — Community Seconds Loan Eligibility
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B5-5.1-02 — Community Seconds Loan Eligibility
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B5-5.1-02, Community Seconds Loan Eligibility (05/03/2023) Introduction
      This topic contains information regarding Community Seconds loan eligibility,
      including: Eligible Community Seconds Providers Acceptable Uses Additional Eligibility
      Requirements Rural Development Section 502 Leveraged (Blended) Loan Program
      Minimum Borrower Contribution Requirements Repayment Structure Pricing and Delivery
      Considerations Eligible Community Seconds Providers Published May 6, 2026 768
      A Community Seconds loan must only be funded by one of the following entities:
      a federal agency, state, county, or similar political subdivision of a state;
      any city, town, village, or borough of a state that has a local government and
      that has been created by a special legislative act, has been otherwise individually
      incorporated or chartered pursuant to state law, or is recognized as such under
      the constitution or by the laws of the state in which it is located; a housing
      ﬁnance agency as deﬁned in 24 C.F.R. §266.5; a nonproﬁt organization exempt
      from taxation under Section 501(c)(3) of the Internal Revenue Code; a regional
      Federal Home Loan Bank under one of its aﬀordable housing programs; an employer
      where a borrower is an employee (see B3-4.3-08, Employer Assistance); a lender,
      only in connection with an employer-guaranteed Community Seconds loan as part
      of its aﬀordable housing program; or an Indian tribe on the most current list
      published by the Secretary of the Interior pursuant to 25 U.S.C. §5131. Note:
      A corporation or other legal entity created by or owned in whole or in part
      by such an Indian tribe is not eligible unless it qualiﬁes as a Tribally Designated
      Housing Entity, as deﬁned in 25 U.S.C. §4103(22). A Community Seconds provider
      must not be the property seller or other interested party in the transaction,
      except when they are the provider of a shared equity program or sweat equity
      program. See B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting
      and Collateral Requirements and B5-6-02, HomeReady Mortgage Underwriting Methods
      and Requirements. Acceptable Uses A Community Seconds loan must be used to fund
      one or more of the following: all or part of the down payment, provided the
      Community Seconds loan is not funded in any way through the ﬁrst mortgage, such
      as premium pricing; closing costs; renovations to the property (including energy-related
      improvements); or a permanent interest rate buydown. In some cases, a Community
      Seconds loan may not involve the advancement of funds, but instead may facilitate
      aﬀordability through a subsidized sales price and/or requirements related to
      the future sale of the home. The eligible provider may secure a Community Seconds
      loan against the property representing the diﬀerence between the market value
      and reduced sales price accepted by the seller (referred to as the subsidy).
      Typically, the subordinate loan has deferred payments and may be forgiven. The
      subordinate loan may also enforce requirements that prevent the borrower from
      selling the property outside of the conﬁnes of the program. The terms of the
      loan may not, however, restrict the sale of the property upon foreclosure or
      acceptance of a deed-in-lieu of foreclosure. When a subsidy is provided, the
      lender may use the Aﬀordable LTV calculation described in B5-5.3-03, Shared
      Equity Transactions: Eligibility, Underwriting and Collateral Requirements.
      When a subsidy is provided and the property has resale restrictions that limit
      both income eligibility and impose a maximum resale price, the provisions in
      Section B5-5.3, Shared Equity Transactions also apply. Published May 6, 2026
      769 Additional Eligibility Requirements The following table provides additional
      eligibility requirements for Community Seconds loans originated in connection
      with a ﬁrst mortgage purchased by Fannie Mae. Criteria Requirements First mortgage
      eligibility The ﬁrst mortgage must be ﬁxed-rate or an ARM with an initial ﬁxed-rate
      period of ﬁve years or more, and otherwise comply with this Guide. Maximum LTV
      and CLTV ratios The maximum LTV is based on the ﬁrst mortgage LTV requirement.
      The maximum CLTV is 105% with a Community Seconds loan, unless the ﬁrst mortgage
      has an independent CLTV cap (such as the CLTV cap for manufactured housing that
      does not meet MH Advantage requirements). Refer to the Eligibility Matrix for
      additional information. Loan purpose The transaction is limited to a purchase
      or limited cash-out reﬁnance. For a limited cash-out reﬁnance, the Community
      Seconds mortgage holder must acknowledge their lien position by executing a
      resubordination agreement. The agreement must be recorded to ensure enforceability.
      Property and occupancy The subject property must be a one- to four-unit principal
      residence. If the loan is secured by a manufactured home, it must comply with
      all manufactured home policies including LTV and CLTV ratio requirements. Income
      limits If income limits are imposed by both the Community Seconds provider and
      the ﬁrst mortgage, the more restrictive will apply. Note: Loans secured by community
      land trusts properties and properties with income and resale price restrictions
      have additional requirements. See B5-5.3-03, Shared Equity Transactions: Eligibility,
      Underwriting and Collateral Requirements. Rural Development Section 502 Leveraged
      (Blended) Loan Program A subordinate lien originated in connection with a conventional
      ﬁrst mortgage under the RD Section 502 Leveraged (Blended) Loan Program is eligible
      for the Community Seconds program. The standard review of Community Seconds
      programs described in B5-5.1-01, Community Seconds Loans, is not required; however,
      the subordinate lien must meet all RD Guidelines. See B6-1-05, Eligible RD-Guaranteed
      Mortgages for additional information. Minimum Borrower Contribution Requirements
      The following table describes the minimum borrower contribution requirements
      for transactions with a Community Seconds loan. Published May 6, 2026 770 LTV,
      CLTV, or HCLTV Ratio Minimum Borrower Contribution Requirement from Borrower''s
      Own Funds 80% or less One- to four-unit principal residence A minimum borrower
      contribution from the borrower''s own funds is not required. All funds needed
      to complete the transaction can come from a Community Seconds loan. Greater
      than 80% One-unit principal residence A minimum borrower contribution from the
      borrower''s own funds is not required. All funds needed to complete the transaction
      can come from a Community Seconds loan. Two- to four-unit principal residence
      The borrower must make a 5% minimum contribution from their own funds. After
      the minimum borrower contribution has been met, a Community Seconds loan can
      be used as described in Acceptable Uses above. Note: See B5-6-02, HomeReady
      Mortgage Underwriting Methods and Requirements, for additional information about
      minimum borrower contribution and down payment requirements, including sweat
      equity requirements, for HomeReady loans. Repayment Structure Repayment of the
      Community Seconds loan may be structured in any number of ways provided the
      terms are consistent with those Fannie Mae considers acceptable. This includes:
      requiring fully amortizing, equal monthly payments; deferring payments for some
      period before changing to fully amortizing, equal monthly payments; deferring
      payments over the entire term, unless the loan is paid oﬀ or the property is
      sold before the maturity date of the loan; or forgiving debt over time. When
      the borrower''s employer is the provider of the Community Seconds loan, the
      ﬁnancing terms may provide for the employer to require full repayment of the
      debt if the borrower''s employment is terminated (either voluntarily or involuntarily,
      for reasons other than those related to disability) before the maturity date
      of the Community Seconds loan. When repayment is required, the maturity date
      of the Community Seconds loan, or the due date of any balloon payment on the
      Community Seconds loan, cannot be before the earlier of: 15 years after the
      note date of the ﬁrst mortgage, or the maturity date of the ﬁrst mortgage. When
      repayment of the Community Seconds loan is deferred for ﬁve years or more, a
      lender is not required to include a monthly payment for the Community Seconds
      loan in its calculation of the borrower''s debt-to-income ratio. When repayment
      is deferred for fewer than ﬁve years, the lender must include the monthly payment
      amount that will be required after the end of the deferral period in its calculation.
      The Community Seconds loan must be a ﬁxed-rate loan and the interest rate may
      not be more than 2% (200 basis points) higher than the initial note rate of
      the ﬁrst mortgage. Note: Interest that is imposed as a penalty should the loan
      be declared in default and called due and Published May 6, 2026 771 payable
      under its terms is not subject to this interest rate cap. The Community Seconds
      loan may not allow for negative amortization, however, because negative amortization
      will occur if the interest rate is greater than zero and the payment of interest
      is ever deferred, negative amortization will be acceptable provided: the amount
      of scheduled monthly interest deferred on the Community Seconds loan for any
      full calendar month within the initial ﬁve years (of the Community Seconds loan)
      may never exceed the scheduled monthly principal payment of the ﬁrst mortgage
      for that month (see below for an example); interest is accrued on a simple-interest
      basis at a ﬁxed rate; and the accrued interest is fully deferred until sale
      or transfer of the property, the loan is reﬁnanced or the ﬁrst mortgage is paid
      in full, or declaration of an event of default under the subordinate note or
      the security instrument. Example In the following example, the ﬁrst mortgage
      is eligible for purchase by Fannie Mae as the amount of deferred, accrued interest
      for July on the Community Seconds loan is less than the scheduled principal
      payment for the ﬁrst mortgage for the same month. Note date: May First payment
      date: July First Mortgage Community Seconds Loan UPB $150,000 $30,000 Interest
      rate 5% 7% Maximum accrued, deferred interest July NA $175.00 ($30,000 @ 7%
      /12) Scheduled principal payment July $180.23 NA Pricing and Delivery Considerations
      Special Feature Codes and Other Reporting The lender must report SFC 118 and
      all other applicable special feature codes when it delivers a ﬁrst mortgage
      that is originated as part of a Community Seconds transaction. Loan-Level Price
      Adjustments Loan-level price adjustments otherwise applicable to subordinate
      ﬁnancing do not apply. Recent Related Announcements The table below provides
      references to recently issued Announcements that are related to this topic.
      Published May 6, 2026 772 Announcements Issue Date Announcement SEL-2023-04
      May 03, 2023'
  judgment: false
