Focuses on avoiding PMI with Community Seconds, but does not contain information about the legal definition of an easement appurtenant. It explains that Community Seconds are subordinate loans that can be used to keep a first mortgage at or below 80% LTV, thereby eliminating private mortgage insurance. These programs, offered by approved entities like state HFAs, enable homebuyers to cover down payments and closing costs, minimizing out-of-pocket expenses while avoiding the additional monthly cost of PMI.
In this guide, we’ll explore:
- What PMI is and how it works
- How Community Seconds loans can be used to avoid or reduce PMI
- Real-world examples of layering financing strategically
- Tips for choosing the right mortgage structure in 2025
What Is PMI?
Private Mortgage Insurance (PMI) is a type of insurance required by conventional mortgage lenders when a borrower puts down less than 20% of the home’s value. It protects the lender—not the borrower—in case of default.
PMI Snapshot:
- Typically required on conventional loans with LTV > 80%
- Monthly cost can range from 0.3% to 1.5% of loan amount per year
- Can be canceled once your loan reaches 78% LTV (or upon request at 80%)
Example: On a $300,000 mortgage, PMI could add $75 to $250/month to your housing payment.
What Is a Community Seconds Loan?
Community Seconds® are subordinate (second) loans used to help homebuyers cover:
- Down payments
- Closing costs
- Rate buydowns
- Renovations or energy improvements
They are typically:
- Forgivable, deferred, or low-interest
- Offered by state HFAs, local governments, nonprofits, or employers
- Used in conjunction with conventional or government-backed first mortgages
By helping cover the upfront cost, Community Seconds let buyers reduce their primary loan balance, and with the right structure, potentially keep their LTV below 80%, which can eliminate PMI.
PMI, LTV, and How They Interact
To understand how to avoid PMI, we need to talk about Loan-to-Value (LTV).
Loan-to-Value (LTV) Formula:
LTV = First Mortgage Loan Amount ÷ Property Value
To avoid PMI on a conventional loan, your first mortgage must be 80% or less of the home’s value. You can then use secondary financing—like a Community Seconds loan—to make up the difference.
Using Community Seconds to Avoid PMI
This strategy works by splitting your financing into two layers:
- First Mortgage – Capped at 80% LTV to avoid PMI
- Community Seconds Loan – Used to cover an additional 10% to 20%, typically deferred or forgivable
- Buyer’s Contribution – Often 0% to 10%, depending on program limits
This structure mimics what’s sometimes referred to in traditional lending as an 80-10-10 or 80-15-5 structure—but with more favorable repayment terms because the second loan is subsidized or low-cost.
Real-World Example: Avoiding PMI With Community Seconds
Let’s say you want to buy a home for $300,000.
| Financing Layer | Amount | LTV | Notes |
| First Mortgage | $240,000 | 80% | No PMI required |
| Community Seconds (2nd) | $45,000 | 15% | Deferred, forgivable, or 0% interest |
| Your Down Payment | $15,000 | 5% | Out-of-pocket or grant-based |
| Total CLTV | $285,000 | 95% | Within Fannie Mae/Freddie Mac limit |
In this case, the first mortgage stays under 80%, so no PMI is required, even though you only brought in 5% of your own funds.
Conditions for Avoiding PMI With Community Seconds
To make this strategy work, you must meet the following conditions:
1. First Mortgage Must Be ≤ 80% LTV
PMI is based only on the first lien, not the total combined loan-to-value (CLTV).
2. Second Lien Must Be From an Approved Source
Acceptable Community Seconds providers include:
- State Housing Finance Agencies (HFAs)
- Local housing authorities
- Nonprofits
- Employers
- Native American tribes or tribally designated entities
3. Programs Must Follow Fannie Mae/Freddie Mac Guidelines
- Total CLTV must not exceed 95% to 105% (depending on the loan product)
- Second lien must have acceptable terms: typically fixed-rate, no balloon payments
- Borrowers must meet income, credit, and occupancy requirements
4. No Cash Back at Closing
The borrower can’t receive cash proceeds from the second lien.
Financial Impact: PMI vs. No PMI
Let’s look at a comparison on a $300,000 home using a 97% LTV loan with PMI vs. an 80% LTV with Community Seconds.
Scenario A: 97% Loan With PMI
- First mortgage: $291,000
- Monthly PMI (0.75% annual): ~$182
- PMI ends when LTV hits 80% (~8–10 years)
Scenario B: 80% Loan + 15% Community Seconds
- First mortgage: $240,000
- No monthly PMI
- Community Seconds loan may be forgiven or deferred
5-Year Total PMI Savings:
$182 × 60 months = $10,920
Takeaway: A structured Community Seconds loan can save buyers thousands of dollars over the life of the loan.
Where These Programs Are Available
States with Notable PMI-Avoidance Structures:
- New Jersey (NJHMFA) – $15,000 forgivable DPA with potential for layered financing
- Colorado (CHFA) – 3% forgivable second mortgage to supplement first loan
- Texas (TSAHC) – Employer-matched second liens, often forgivable or deferred
- Connecticut (CHFA) – Layered grant + deferred loan combinations up to 5%–8%
Many of these programs are specifically designed to work in conjunction with conventional loans that avoid PMI when properly structured.
When Should You Choose This Strategy?
Ideal If:
- You want to maximize monthly affordability
- You qualify for Community Seconds from an approved source
- You’re comfortable with a second lien, even if deferred
- You plan to stay in the home for at least 5 years (if second loan is forgivable)
Might Not Work If:
- You’re using FHA, VA, or USDA loans (which have different mortgage insurance structures)
- You can’t find an eligible Community Seconds provider
- You exceed the program’s income or purchase price limits
Tips for Structuring the Loan Properly
- Start with a Lender Familiar with Layered Financing
Not all lenders understand how to structure loans to avoid PMI using second liens. - Get Pre-Approved With the HFA First
You may need a certificate of eligibility from your state or city program. - Complete Homebuyer Education
Many programs require a HUD-approved class, which can often be completed online. - Review the Forgiveness Terms
Some second liens are forgivable over 3–10 years, which can boost equity faster. - Understand Repayment Triggers
If the second lien is deferred, it may become due if you sell, refinance, or move out early.
How to Avoid PMI With Community Seconds
| Step | What to Do |
| Keep first mortgage at ≤ 80% LTV | Avoid PMI trigger |
| Use Community Seconds to bridge gap | Down payment, closing costs, etc. |
| Confirm second lien source is eligible | Must be nonprofit, HFA, employer, or government |
| Follow program guidelines | Income, credit, and occupancy restrictions apply |
| Structure loan with approved lender | Ensure CLTV ≤ 105% and repayment terms are clear |
Final Thoughts
Avoiding PMI doesn’t require a 20% down payment in 2025. With the right structure—and an approved Community Seconds provider—you can reduce your monthly costs, preserve your savings, and increase your equity faster.
Whether you’re a first-time buyer or a real estate agent guiding clients, understanding this strategy can open new doors to affordable homeownership.