Final answer:
FHA-insured mortgages may include secondary financing under certain restrictions to ensure loan stability. Secondary financing is scrutinized to prevent defaults similar to mid-2000s subprime and NINJA loans with higher future payments.
Step-by-step explanation:
The restrictions and conditions associated with FHA-insured first mortgage transactions that include secondary financing mainly focus on ensuring the stability and viability of the loan. Secondary financing, which can include loans or grants from governmental entities, non-profits, family members, or employers, is often used to help cover down payments and closing costs.
The FHA permits secondary financing under specific circumstances and with certain restrictions to maintain the primary mortgage's secure position and mitigate the risks associated with low down payments and higher loan-to-value ratios.
As a rule, the combined loan-to-value ratio, including the primary and secondary financing, should not exceed FHA-specified limits, and lenders must carefully scrutinize borrowers’ creditworthiness to avoid potential defaults that became common with the 'subprime' and 'NINJA loans' of the mid-2000s, which had minimal down payments, little income verification, and could lead to much higher future payments.