Financing property w/ NSP Forgivable Mortgage Agreement in Place

[Matt Holmer]

There are two properties in my area that I am interested in.  One is a duplex and the other is a 4 plex.  Both are from the same seller and both have the same potential issue. 

Each property was recently renovated city funds from a neighborhood stabilization program.  The loans are forgivable after 10 years (5 remaining) if certain tenant guidelines related to income are maintained.  The seller has significant equity in each property and is offering to carry a second (presumably a portion of the down payment).

My question, forgetting about the potential seller carry back for a second, is how will a traditional lender (likely portfolio) look at the forgivable NSP mortgage?  Do these programs typically subordinate their forgivable mortgage to the new purchase money mortgage?

Pardon my ignorance on this whole subject.  Until a couple days ago I did not even know these programs existed.  Once I have a better understanding (hopefully from this thread), I then should at least know what questions to ask when contacting the various lenders.

Thank you for any insight anyone can offer.