Chenoa Fund is a national down payment assistance program administered by CBC Mortgage Agency, a federally chartered governmental entity. Through the Chenoa Fund program, CBC Mortgage Agency specializes in providing down payment assistance (DPA) for low- to moderate-income borrowers.
The DPA Edge Soft Second product is a second mortgage used to provide down payment assistance. The DPA Edge Soft Second product is a forgivable loan.
How does the borrower qualify for the DPA Edge Soft Second product?
In order to qualify for the DPA Edge Soft Second product, the borrower must qualify for an FHA loan and meet product overlays, including the following:
- Minimum credit score of 600
- Debt-to-income ratio maximum, based on FICO score:
- 600–639: 45% or less
- 640–659: 50% or less
- 660+: Per AUS findings
- Qualifying income equal to or less than 115% of the area median income for the county in which the borrower will live
- The DPA Edge Repayable Second product is available for borrowers above this AMI limit
With this product, the borrower receives a 30-year term, 0% rate (0% APR), no payment second mortgage. A lien is placed on the property for the amount of the assistance. The loan is forgiven if the borrower meets the forgiveness conditions, which are determined by the down payment amount:
- 3.5%: Forgiven after 36 consecutive, on-time payments are made on the FHA first mortgage, or at the end of the 30-year term.
- 5%: Forgiven after the initial 120 consecutive, on-time payments are made on the FHA first mortgage. The loan loses its forgivable status if any of the initial 120 payments are 60+ days late; in this instance the loan will still have a 30-year term and a 0% interest rate (0% APR), but it will be a deferred payment loan. The loan is also forgiven at the end of the 30-year term, even if any payments were 60+ days late.
The loan will need to be repaid upon transfer of ownership or refinance if it is not already forgiven.
What is the second lien on the property?
The lien is for the down payment assistance, which is referred to as the second mortgage. This second mortgage has a 30-year term at a 0% interest rate (0% APR) and has no monthly payments.
What is meant by “the loan is forgiven”?
A loan that is “forgiven” goes away and never needs to be repaid.
For example, let’s assume the borrower receives $10,000 for down payment assistance through the DPA Edge Soft Second product. After the borrower meets the forgiveness terms, the borrower may provide evidence of his or her on-time payments on the first mortgage in the form of a payment history. Once confirmed by CBC Mortgage Agency, the $10,000 loan is forgiven entirely—the borrower will never have to pay it back.
For 3.5% assistance, the loan is forgivable after the borrower makes 36 consecutive, on-time payments on the FHA first mortgage. If the borrower ever makes a payment that’s 30 days late (or more), the forgiveness period resets.
For 5% assistance, the loan is forgivable after the borrower makes the initial 120 consecutive, on-time payments on the FHA first mortgage. If the borrower ever makes a payment that’s 60 days late (or more), the forgivable status of the loan is terminated. (In that instance, the loan will still have a 0% interest rate, 0% APR, and require no monthly payments.) However, the loan may still be forgiven at the end of the 30-year term, even if any payments were 60 days (or more) late.
How can my borrower get the loan forgiven?
The borrower will need to provide a payment history to CBC Mortgage Agency’s servicing team after meeting the forgiveness conditions. Our servicing team can be reached at email@example.com.
What happens if the borrower refinances the first mortgage or sells the home before the forgiveness terms are met?
Let’s continue the example outlined above. If the borrower received $10,000 for a down payment and then refinance the first mortgage before meeting the forgiveness terms, the borrower would be required to pay the $10,000 back in full. The same would apply if the borrower sold the home.
Why was the DPA Edge Soft Second product created?
While many people do manage to purchase a home by saving for a down payment over a period of years, increasing home prices and stagnant or low wages can make this quite difficult. By helping responsible homebuyers overcome the challenge of the down payment, CBC Mortgage Agency is helping to create healthy communities and improve the balance between homeownership and other types of housing. This way, new homeowners can start building equity for their future now, rather than potentially waiting for years to save a down payment while home prices become even more unaffordable.
CBC Mortgage Agency does not originate mortgage loans. This is not an offer to lend money nor a solicitation of a mortgage application by CBC Mortgage Agency.