What Is the Definition of a Soft Second Mortgage?

Soft second mortgages help low income buyers become homeowners.

A soft second mortgage combines a subsidized second mortgage with a traditional first mortgage to make housing more affordable for low and middle income homebuyers. There are income specifications limiting who is eligible for this program.



A soft second mortgage helps low to moderate income buyers purchase a primary residence. The home purchased must be located in a community that participates in a soft second mortgage program.


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The mortgage is split into two parts, a first mortgage and a subsidized second mortgage. Up to 75 percent of the second loan's interest is paid for by government funds for the first five years, with the percentage decreasing over time and ending after 10 years. The subsidy the homeowner receives depends on the percentage of income paid on the mortgage each month, ranging from 28 to 33 percent. Splitting up the loans also helps the buyer avoid potentially expensive private mortgage insurance.



In Massachusetts, a homebuyer must earn no more than 80 percent of the median income in the housing area to apply for a soft second mortgage. The buyer must also take a Homebuyer 101 class approved by the Massachusetts Office of Housing and Development. Moreover, buyers must prove they can afford the home before being approved for a soft mortgage.



In New Mexico, a soft second mortgage can be used to refurbish foreclosed homes to bring them up to par with laws, codes, and other state or local requirements. A soft second mortgage can also be used to make energy efficiency or energy conservation home improvements.