Subordinate Financing Explained
A subordinate loan sits behind your main mortgage in line for repayment. Here is how second liens, down payment help, and piggyback financing work on a home loan.
Kinds of subordinate financing
Second liens a lender can work with
- A home equity line or loan kept in second position
- Down payment assistance and community second programs
- Employer-provided loans with deferred payments
- Purchase-money seconds used to buy the home
- Non-purchase-money seconds, treated as cash-out when paid off
- New second liens, once properly subordinated behind the first
Second liens can stay
Down payment programs qualify
Lien position is protected
Keep your existing second
Payments count in your ratios
We coordinate the paperwork
What Subordinate Financing Is
A second loan that sits behind your first
Subordinate financing is any loan on your home that sits behind your main mortgage in line for repayment. If the home were ever sold or foreclosed, the first mortgage is paid before the subordinate lien. A home equity line, a down payment assistance loan, or a piggyback second are all common examples.
Community second and employer assistance programs are written to sit behind your first mortgage and stay there. If you already have a second lien and you are refinancing the first, that is its own process, and our page on keeping a HELOC or second mortgage when you refinance covers it in full.
The type of second matters. A purchase-money second, used to buy the home, can be paid off inside a rate and term refinance. A second used for other purposes is treated as cash-out when it is paid off. Second lien payments are also counted in your monthly obligations.
How subordinate financing works
Keeping or adding a second lien is common and allowed. Here is how lenders handle it on a purchase or a refinance.
A Second Sits Behind
Subordinate financing is simply a loan in second position behind your main mortgage. The first mortgage has priority, and the subordinate lien is repaid after it. That order is what a lender protects.
Lien Position Is Protected
A lender protects the order of the liens on your home. A subordinate lien is written and recorded to sit behind your first mortgage and to stay there for the life of the loan.
Down Payment Help Qualifies
Community second and down payment assistance loans are accepted as subordinate financing on many programs. Some are structured with deferred payments, which can ease your monthly budget.
Purchase Money Is Different
A second lien used to buy the home can be paid off inside a rate and term refinance. A second used for other purposes is treated as a cash-out refinance when it is paid off, which changes the terms.
Payments Are Counted
Any required payment on a subordinate lien is included in your monthly obligations when a lender reviews your file, alongside your first mortgage, taxes, and insurance.
New Seconds Are Re-Reviewed
Adding new junior debt on the property means the loan is re-underwritten so the new second is properly subordinated. Second liens must stay behind the first for the loan to be eligible.
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Frequently Asked Questions
Common questions about subordinate financing.
It is any loan on your home that sits behind your main mortgage in line for repayment, such as a home equity line, a piggyback second, or a down payment assistance loan.
Not always. A second lien can either stay in place behind your new first mortgage or be paid off with the new loan, and paying one off can change how the refinance is classified. Our page on keeping a HELOC or second mortgage when you refinance walks through how that works.
Yes. Community second and down payment assistance loans are accepted as subordinate financing on many programs, and some allow deferred payments.
Often, yes, and it is handled through a recorded agreement with your second lien holder. Our page on keeping a HELOC or second mortgage when you refinance walks through how that works.
Yes. A second used to buy the home can be paid off inside a rate and term refinance. A second used for other purposes is treated as cash-out.
Yes. The required payment on a subordinate lien is counted in your monthly obligations along with your first mortgage, taxes, and insurance.
You can, but new junior debt means the loan is re-underwritten so the new second is properly subordinated behind the first.
Find out what you qualify for
Have a second mortgage or down payment loan in the picture? We can map out how it fits your purchase or refinance.
Get Pre-Qualified- Fannie Mae, Selling Guide B2-1.2-04, subordinate financing
- Consumer Financial Protection Bureau, what is a second mortgage loan or junior lien?
Approval is subject to credit approval, income and asset verification, and program eligibility. How a subordinate lien is treated depends on the program, the type of second, and how it was originally used. This page is informational and is not a commitment to lend. Not all applicants will qualify.