TILA and hero buyers: which disclosures the silent second and DPA loans can skip

The first mortgage behind a GNND, hero-DPA or employer-assisted purchase is an ordinary consumer-purpose loan under Regulation Z; the subordinate 0% assistance loan often qualifies for a partial exemption from the Loan Estimate and Closing Disclosure.

Nothing about a teacher’s or firefighter’s occupation moves a purchase loan outside Regulation Z. The home is a primary residence, the purpose is personal, so every Reg Z protection applies to the first mortgage. The interesting question for this buyer is the second loan that usually rides along.

The subordinate assistance loan

Section 1026.3(h) creates a partial exemption for subordinate-lien loans made for down payment, closing costs or similar purposes when the contract charges no interest, repayment is deferred or forgiven, and the borrower’s costs are limited to recording fees, transfer taxes and a modest application or counseling fee totaling under 1% of the amount. HUD’s GNND silent second and most state hero deferred seconds meet that description. For those loans the creditor may skip the TRID Loan Estimate and Closing Disclosure and provide the older-style Truth in Lending disclosure instead. A forgivable second that carries a nominal interest rate, or an employer loan at 2% or 3%, does not fit the exemption and needs its own full disclosures.

Higher-priced status on the first mortgage

HFA first mortgages bundled with assistance are frequently priced above the agency’s plain product. If the APR lands 1.5 percentage points or more above the average prime offer rate for a first lien, the loan is a higher-priced mortgage loan: an escrow account for taxes and insurance becomes mandatory for at least five years, and the appraisal must be a full interior inspection with a copy delivered to you. GNND purchases have a specific wrinkle — Reg Z’s second-appraisal requirement for quickly resold properties generally does not apply when the seller is a federal agency, so a HUD-owned home does not trigger it even though HUD acquired it recently.

What the disclosures will and will not show

The APR on a hero program loan includes any origination charge the program allows and any discount points the HFA requires; it does not include the value of a discount off the purchase price, so GNND’s 50% never appears in the finance charge. A lender credit labeled as a hero benefit reduces the finance charge and must be reflected consistently between the Loan Estimate and Closing Disclosure. Purchase loans carry no three-day right of rescission, so the signing at closing is final even for a first-time buyer under a program.

Questions worth asking

• Does the second lien use the 1026.3(h) exemption, and if so what disclosure will I receive for it?
• Is the first mortgage a higher-priced loan, and is escrow therefore required for five years?
• Are the program’s required points included in the APR shown to me?

The general rules are on the TILA page; the program landscape is on the hero buyer page.

What to check

• Confirm whether the DPA second is a 0%, deferred or forgivable loan with costs under 1% — that is what lets it use the Reg Z partial exemption.
• Ask for the APR-to-APOR spread on the first mortgage; a higher-priced loan locks in a five-year escrow.
• Check that any “hero” lender credit appears identically on the Loan Estimate and the Closing Disclosure.
• Do not expect a rescission period: purchase-money loans have none.

Frequently asked questions

Does HUD’s GNND silent second get a Loan Estimate?

Usually not. The GNND second carries no interest, requires no payments and is released after 36 months, which fits the Regulation Z partial exemption for subordinate assistance loans. You should still receive a written disclosure of its terms, and the amount will appear as subordinate financing on the Closing Disclosure for the first mortgage. Ask the closing agent to walk you through both documents.

Is an employer-assisted housing loan covered by TILA?

If the employer extends credit regularly and charges interest or a finance charge, Reg Z applies and the employer-lender must disclose the terms; a one-off interest-free grant is not credit at all. Many employer programs avoid the question by structuring help as a grant or a 0% forgivable note. Ask HR which structure is used and request the written terms before you apply for the first mortgage.

The rule in full: Truth in Lending Act (TILA) and Regulation Z. The borrower profile: Teachers, first responders and “hero” buyers. Related guides: Down payment assistance programs: how they work and how to find yours · FHA vs conventional for a first-time buyer: which loan wins, and when · Closing costs explained: what is negotiable, what is not · ARM vs fixed-rate mortgage: when an adjustable rate makes sense.

Other federal rules for teachers, first responders and “hero” buyers

RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · HPA / PMI · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation

TILA / Reg Z for other borrowers

First-time buyers · Conventional borrowers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Rural buyers · Condo & second home · Refinancing