Community Seconds, secondary financing for down payments and closing costs, come in two main types impacting repayment terms of Community Seconds: forgivable and deferred loans. Forgivable loans are repaid only if conditions like a minimum occupancy period (typically 3-10 years) aren’t met, with the loan amount progressively “forgiven.” Deferred loans, on the other hand, require full repayment, but only upon a triggering event like selling, refinancing, or moving out, without regular monthly payments. Choosing depends on your anticipated homeownership duration and equity-building goals.
What Are Community Seconds?
Community Seconds are subordinate loans layered beneath a primary mortgage, used to cover costs like:
- Down payment
- Closing fees
- Interest rate buydowns
- Renovations or energy efficiency upgrades
These second liens are most commonly structured as either:
- Forgivable loans, or
- Deferred-payment loans
While both are helpful, the financial impact depends on how long you stay in the home, your future plans, and the specific terms of the program.
What Is a Forgivable Loan?
A forgivable loan is a loan that doesn’t require repayment—as long as you meet certain conditions. Most often, these conditions include living in the home for a minimum period, usually 3 to 10 years.
How It Works:
- The loan is recorded as a second mortgage, but you make no monthly payments
- Over time, the loan is forgiven in increments (typically annually)
- If you sell, refinance, or move out early, you may need to repay the remaining unforgiven balance
Example:
You receive a $10,000 forgivable loan that’s forgiven over 5 years. Each year, $2,000 is forgiven. If you sell after 3 years, you would repay $4,000.
Common Terms:
- 0% interest
- Forgiveness timeline: 3, 5, or 10 years
- Used widely in down payment assistance (DPA) programs
What Is a Deferred Loan?
A deferred loan requires repayment, but not right away. The balance typically becomes due when you:
- Sell the home
- Refinance the primary mortgage
- Move out of the property
Unlike forgivable loans, you will pay back the full amount, unless the program offers partial forgiveness.
How It Works:
- The loan is also recorded as a second mortgage
- No monthly payments while you live in the home
- Repayment is postponed, often for 30 years or until you trigger repayment by selling or refinancing
Example:
You receive a $15,000 deferred loan with 0% interest. You sell your home 8 years later. You pay back the full $15,000 from your sale proceeds.
Common Terms:
- May be 0% interest, low interest (e.g., 1%-3%), or silent (no payments unless triggered)
- Loan terms often last 30 years or until a triggering event
Head-to-Head Comparison
| Feature | Forgivable Loan | Deferred Loan |
| Repayment Required? | Not if all conditions met | Yes, upon sale/refinance/move-out |
| Interest Rate | Typically 0% | 0% to low interest (1–3%) |
| Monthly Payments | None | None |
| Equity Impact | Increases homeowner equity over time | Reduces net proceeds at sale/refinance |
| Best For | Buyers planning to stay for 5+ years | Buyers needing upfront help, unsure of timeline |
| Risks | Repayment if you move out early | Balloon repayment later if equity is tight |
Which One Is Right for You?
Here’s how to decide:
Choose a Forgivable Loan if:
- You plan to stay in the home for the required period (usually 3–10 years)
- You want to build equity faster
- You’re confident you won’t refinance or relocate early
- You want to maximize long-term affordability
Choose a Deferred Loan if:
- You’re unsure how long you’ll stay in the home
- You want to minimize upfront costs, even if it means repaying later
- Your buying timeline is tight, and you need quick access to funds
- You’re planning a shorter ownership window (3–5 years)
Real-World Scenario Comparison
Let’s say you’re purchasing a home for $250,000 and qualify for a $10,000 Community Seconds loan. You sell the home after 4 years.
Scenario A: Forgivable Loan (5-Year Term)
- Forgiveness: $2,000 per year
- After 4 years: $8,000 forgiven, $2,000 repaid
- Net benefit: $8,000
Scenario B: Deferred Loan (0% Interest, 30-Year Term)
- No forgiveness
- After 4 years: $10,000 repaid at sale
- Net benefit: $0, but helped you buy the home with less cash
Takeaway: Forgivable loans offer more long-term value, but only if you stay long enough.
What Programs Typically Offer Each Type?
Common Forgivable Loan Programs:
- New Jersey HMFA: Offers $15,000 forgivable DPA loans
- Colorado CHFA: Provides 3% of purchase price, forgivable after occupancy period
- CHFA Access (CT): Offers up to $6,000 in forgivable assistance
Common Deferred Loan Programs:
- Connecticut CHFA Deferred Access: Interest-free, paid at sale or refinance
- Texas TSAHC: Offers deferred repayment options over 30 years
- Fannie Mae Community Seconds®: Allows deferred repayment if structured properly
Real Estate Agent Insight: Advising Clients
If you’re a real estate agent, coach clients through these key questions:
- How long do you expect to stay in the home?
- Are you comfortable with the idea of a lien, even if there are no payments?
- Would you benefit more from upfront savings or long-term equity?
- Is your exit strategy (sell, refinance, rent) clear?
It’s also helpful to partner with lenders familiar with Community Seconds, as these programs often require special documentation and eligibility review.
Know Your Terms, Know Your Timeline
Both forgivable and deferred loans can make homeownership more accessible—but choosing the right one depends on your plans, priorities, and financial flexibility.
| Question | Forgivable Loan | Deferred Loan |
| Will you stay 5+ years? | ✔️ Strong choice | ❌ May not benefit as much |
| Need flexibility to move soon? | ❌ May trigger repayment | ✔️ Better for short stays |
| Want to avoid repayment? | ✔️ If terms are met | ❌ Repayment almost always due |
| Concerned about net equity? | ✔️ Adds equity if forgiven | ❌ Repayment reduces equity |
Final Thoughts
If you’re choosing between a forgivable and a deferred Community Seconds loan, the best decision is the one aligned with your homeownership goals and time horizon. Forgivable loans tend to reward stability and long-term planning, while deferred loans offer flexibility and upfront relief.
Whether you’re a buyer or advising one, take time to:
- Review all loan terms
- Understand the repayment triggers
- Ask about forgiveness schedules
- Work with a lender or housing counselor who can run the numbers with you