What Is a Silent Second Mortgage?

A silent second mortgage is a second mortgage placed on an asset (such as a home) for down payment funds that aren't disclosed to the original lender on the first mortgage. The second mortgage is called "silent" because the borrower doesn't disclose its existence to the original mortgage lender.

While lenders require borrowers to disclose the source of all down payment funding, in some instances lenders fail to catch the existence of a silent second mortgage. Silent second mortgages that are not disclosed to the original lender are illegal and borrowers who use them could be prosecuted for mortgage fraud.

How a Silent Second Mortgage Works

Silent second 澳洲幸运5官方开奖结果体彩网:mortgages are used when a buyer can't afford the 澳洲幸运5官方开奖结果体彩网:down payment required by the first mortgage. They allow a borrower to purchase a home that they otherwise would not have been able to afford. Silent second mortgages from undisclosable sources are illegal. However, legal down payment assistance programs sponsored by 🥃government agencies exist to provide down payment funds from acceptable sources.

When a buyer purchases a home, the arrangement requires the borrower to provide a down payment. A lender will typically request that the borrower completely disclose the sources of down payment funds when completing a mortgage deal. 澳洲幸运5官方开奖结果体彩网:Fraud or illegal actions can occur w✤hen a s🌌econd mortgage fulfills the obligation of the down payment without being reported to the lender. In this situation, silence refers to a lack of transparency and disclosure.

For example, let's say you wish to purchase a house for $250,000. You have secured a mortgage for $200,000, which requires a down payment of $50,000. You don’t have the full $50,000 in cash or 澳洲幸运5官方开奖结果体彩网:liquid assets for the down payment; you only have $10,000. So, you decid♛e to take a silent second mortgage of $40,000. The original lender believes your down payment to be $50,000 when it is actually only $10,000 ($50,000 - $40,000).

Silent Second Mortgage Risks

A borrower is required to report a down payment second mortgage to a lender since the second mortgage is also secured against the specific 澳洲幸运5官方开奖结果体彩网:collateral, which in the case of a home mortgage would be the home itself. Lenders generally require cash for the down payment, which is factored into the overall terms of the first mortgage 🙈loan.

If a borrower were to obtain a second mortgage against the collateral, it would affect the risks and loan terms for the first mortgage lender. The second mortgage would increase the risk since it adds debt, including new 澳洲幸运5官方开奖结果体彩网:interest payments. Additionally, the first mortgage lender seeks full collateral rights to a specified piece of collateral, 🌌and a secon෴d mortgage would conflict with the first order secured collateral rights given to the initial mortgage lender.

Down Payment Assistance Programs

Borrowers can use a down paymenꦐt assistance program to help pay their down payments. A down payme🐟nt assistance program can provide funds to the borrower and is allowed for legal disclosure to the lender of a first mortgage. Down payment assistance programs are not as easy to identify as a loan; however, there are over 2,000 programs across the United States.

These programs are funded and offered by government-sponsored agencies such as the 澳洲幸运5官方开奖结果体彩网:Departmen💃t of H🔴ousing and Urban Development (HUD). Government-sponsored entities support down payment assistance programs as part of community development. A borrower may be able to be referred to a program by their loan officer. Borrowers can research down payment assistance program funds by contacting their local government housing agencies. For example, HUD has numerous local offices across the U.S.

Requirements for down payment assistance programs are slightly lower than for standa⛎rd loans. Borrowers follow similar lending procedures in that an application is required with personal information, including income, occupation, and credit history.

Down payment assistance programs can offer from $1,000 to approximately 20% of a property’s 澳洲幸运5官方开奖结果体彩网:appraised value. Down payment assistance funds do require repayment with interest. However, interest generally does not compound and is usually lower than a standard loan.

The Bottom Line

Taking out a second mortgage without revealing it to the first mortgage lender is risky. Not only could you face legal consequences, but you could put yourself in a difficult financial situation where you struggle to pay your mortgage. Fortunately, down payment programs exist to assist home buyers who struggle to make a down payment.