• Jan 20, 2019 MFA offers interest-free forgivable second mortgage
    Gary Sandler
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    Published 20 January 2019

    The New Mexico Mortgage Finance Authority recently announced the launch of a new loan option for current homeowners wishing to purchase their next primary residence.

    The NextHome/NextDown program provides a fully forgivable second mortgage that allows move-up buyers to purchase a new or existing single-family home, townhome, condominium or doublewide or larger manufactured home as their next primary residence using 40 to 50 percent of the cash they would normally need to swing the deal.

    Buyers may keep their current home as a rental or sell it later.

    Buyers who earn no more than $91,000 annually and purchase a home priced no higher than $340,000 are eligible. With a minimum credit score of 620 and an acceptable debt-to-income ratio, mover-uppers can obtain a new 30-year, fixed-rate loan as their first-mortgage, with MFA providing a 30-year, 0 percent fixed-rate second mortgage to cover their closing costs. The second mortgage is fully forgivable if the buyer remains in the home for at least 15 years and meets other conditions.

    For example, a buyer who utilizes the program to purchase a $200,000 home would typically need a down payment equal to 3 percent of the purchase price, or $6,000, plus around $3,000 to $4,000 in closing costs. In this scenario, the total cash required to complete the purchase would be somewhere in the neighborhood of $9,000 to $10,000.

    After providing the buyer with a first mortgage of $194,000, MFA would then fund a second mortgage equal to 3 percent of the loan amount, or $5,820 in this instance, to cover a portion of the $9,000 to $10,000 required to complete the purchase. The buyer would then contribute the remaining $3,840 to $4,840 from their own funds.

    The second mortgage accrues no interest and requires no monthly payments over the life of the loan. In industry jargon, it’s referred to as a “silent second”. Both the first and second mortgages may be paid off at any time without penalty.

    If the homebuyer remains in the home throughout the first 10 years and doesn’t refinance, transfer title, sell, rent or otherwise vacate, 20 percent of the second mortgage will be forgiven annually between the 11th and 15th years. By the time the loan term reaches the 15th year, the entire amount of the second mortgage will have been forgiven.

    The NextHome/NextDown program works in conjunction with FHA, VA, HUD Section 184, USDA Rural Housing and HFA Preferred conventional loans, according to MFA homeownership representative Teri Baca.
    “It is also available to first-time homebuyers whose income is too high to qualify for our FirstHome/FirstDown first-time buyer program,” Baca said.

    MFA loans are made by eligible banks and mortgage companies located throughout New Mexico. A list can be obtained at http://www.housingnm.org/homebuyers/find-a-participating-lender.

    See you at closing.

    Gary Sandler is a full-time Realtor and the president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or

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      Gary Sandler