Definition
Forgivable seconds are second mortgages from nonprofits or government agencies that forgive annually or upon program completion if you stay in the home. The forgiveness incentivizes owner-occupancy. After you meet residency requirements, the loan obligation disappears.
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Forgivable second mortgages are structured as loans but with forgiveness provisions. For example, a nonprofit provides $30,000 as a second mortgage with 0% interest, forgiving $5,000 annually if the borrower remains in the home. After 6 years, the full amount is forgiven. Forgivable seconds reduce the borrower's effective down payment while preserving the tax benefits of mortgage interest deduction (unlike grants). They're popular with HFAs and nonprofits because they're structured as loans while functioning as assistance. If the borrower violates residency requirements, the forgivable portion reverts to a traditional loan.
Pro Tip
Forgivable seconds are valuable; ensure you understand residency requirements to obtain full forgiveness.
Example
A nonprofit provides a $30,000 forgivable second mortgage at 0% interest, forgiving $3,000 annually over 10 years if you remain in the home.