The primary obstacle of purchasing a home is coming up with the funds required for down payment, closing costs and pre paid expenses such as taxes and homeowners insurance. Some would be home buyers simply struggle to save the required amount, but realize that owning a home is still in their best interest, and something they desire. Other home buyers have saved the funds necessary, but are reluctant to tie up all of their assets into the home, and not have an emergency fund left over.

In either case, qualified first time home buyers may be eligible for a loan program which offers a second mortgage, up to 4% of the first mortgage, to be utilized toward down payment or closings. For example, someone is purchasing a home for $250,000, with a 5% down payment. The down payment required in this case is $12,500, resulting in a first mortgage amount of $237,500. Qualified borrowers can be eligible for a second lien of $9,500(4% of $237,500), which can be applied toward the down payment and closing costs.

Think of this second mortgage as a “silent loan”. No payment is due on this second mortgage, which carries an interest rate of 0%. As long as the home buyer lives in the home for the next 5 years, does not sell, refinance or rent the property out to someone, the entire second lien of $9,500 is deemed satisfied, and fully forgiven, with no payments having been made. The lender will send the homeowner a cancellation of mortgage, or release of lien, for this second mortgage.

This loan program is eligible to qualified first time home buyers only. While not available in every municipality in NJ, many towns and areas are indeed eligible. To see if you qualify for the program, and if your desired town is eligible as well, please feel free to reach out to Thomas E. Smith, American United Mortgage Corporation, 908-322-5623.