'Piggybacking' loans has become the most popular way to purchase a home over the past few years. This avenue of financing serves two main purposes. First, it allows the buyer to purchase a property with no down payment. With the current prices of homes it has become increasingly difficult for first time buyers to save even 5% of the asking price. Second, the buyer can avoid paying monthly PMI (private mortgage insurance).
Fundamentals of PIGGYBACKING.
Purchase without a down payment.
The lender will allow you (the buyer) to obtain 2 separate loans on the same property. The first loan will be for 80% of the home's value and acts as the primary lien. The second loan will account for the remaining 20% and serves as your down payment.
Rates will vary on these programs.
Typically the 1st loan (80%) you can get close to market rates. Generally lenders will charge slightly higher rates since you are doing 100% with 2 loans. The 2nd loan (20%) can range from 8% to 12% depending on the lender, program, etc.
Loans you can obtain also can be different from lender to lender.
However the 1st mortgage you have the most options. You can get a fixed rate loan (i.e. 30, 15 years), an adjustable rate (ARM, for 2, 3, 5 years) and even get an interest only loan. The 2nd mortgage availability is a little more limited. Typically the lenders will only offer a 15 or 30 year fixed loan, some lenders do offer a Home Equity Line of Credit (HELOC) 2nd where you can choose to pay interest only payments. Make sure you review all the programs, products and payments prior to making a decision.
Avoid the need for PMI (private mortgage insurance).
Finally, this is the biggest feature of this program. When you obtain the one loan 100% the lender will require you to obtain PMI. PMI insures the lender if you were to go into default. However it is an added cost to you and depending on the size of the loan it could be $150 or more per month. The best way to compare is obtain two quotes, one with 100% one loan and PMI and the other an 80/20 piggyback scenario without PMI. Then see which payment is lower. This will require the assistance of a professional mortgage consultant.
Now that you have some information on how piggybacking works you can feel comfortable talking about it. Remember you can purchase a home with no down payment but make sure the program is right for you.
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'Piggybacking' loans has become the most popular way to purchase a home over the past few years. This avenue of financing serves two main purposes. First, it allows the buyer to purchase a property with no down payment. With the current prices of homes it has become increasingly difficult for first time buyers to save even 5% of the asking price. Second, the buyer can avoid paying monthly PMI (private mortgage insurance).
Fundamentals of PIGGYBACKING.
The lender will allow you (the buyer) to obtain 2 separate loans on the same property. The first loan will be for 80% of the home's value and acts as the primary lien. The second loan will account for the remaining 20% and serves as your down payment.
Typically the 1st loan (80%) you can get close to market rates. Generally lenders will charge slightly higher rates since you are doing 100% with 2 loans. The 2nd loan (20%) can range from 8% to 12% depending on the lender, program, etc.
However the 1st mortgage you have the most options. You can get a fixed rate loan (i.e. 30, 15 years), an adjustable rate (ARM, for 2, 3, 5 years) and even get an interest only loan. The 2nd mortgage availability is a little more limited. Typically the lenders will only offer a 15 or 30 year fixed loan, some lenders do offer a Home Equity Line of Credit (HELOC) 2nd where you can choose to pay interest only payments. Make sure you review all the programs, products and payments prior to making a decision.
Finally, this is the biggest feature of this program. When you obtain the one loan 100% the lender will require you to obtain PMI. PMI insures the lender if you were to go into default. However it is an added cost to you and depending on the size of the loan it could be $150 or more per month. The best way to compare is obtain two quotes, one with 100% one loan and PMI and the other an 80/20 piggyback scenario without PMI. Then see which payment is lower. This will require the assistance of a professional mortgage consultant.
Now that you have some information on how piggybacking works you can feel comfortable talking about it. Remember you can purchase a home with no down payment but make sure the program is right for you.