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PIGGY-BACK FINANCING
There are two main reasons why someone would utilize two mortgages for their home purchase loan. One, dual financing can keep you within limits for qualifying for a Fannie Mae/Freddie Mac conforming loan. Two, you can avoid paying mortgage insurance on a jumbo loan or a conforming loan with piggy-back financing.

Dual financing and conforming loans
In order to qualify for a conforming loan, the finance amount you are seeking can not be more than $417,000. Suppose the amount you need to finance is more than the conforming limit? You can use two mortgages, known as piggy-back financing, to lessen the difference between the conforming limit and the purchase price of your home. Your first mortgage would obviously be a conforming loan, with your second mortgage likely being some type of low rate home equity loan.

Here is an example of how dual mortgages work: Let's say you are going to buy a house for $575,000, with a down payment of $80,000. The amount needed for financing will be  $495,000. This puts you out of the 2006 conforming limit of $417,000. Therefore you will need some sort of second mortgage for $78,000 to keep you within the conforming limits.

Dual financing and PMI
Fannie Mae and Freddie Mac require that you will need to put down at least 20% of the purchase price in order to avoid paying private mortgage insurance. If you do not have 20% as a down payment, you can utilize a loan that is 75-15-10. Meaning, you finance 75% with your first mortgage and 15% on your second mortgage with a 10% down payment.

With any type of jumbo loan, you will end up paying PMI if you finance anything greater than 80% of your loan. Jumbo loans are less strict in the guidelines of dual mortgages. Meaning you can utilize any combination of financing with piggy-back financing a jumbo loan. The most common type of dual mortgage is 80-10-10. Meaning your first loan is 80%, your second loan is 10% and your down-payment is 10%.

In conclusion...
Piggy-back financing is a great idea if you plan on plan on paying off your second mortgage before the loan term ends. For instance, let's say you anticipate a large inheritance, but want to buy a home now. So, you take out a second mortgage in the amount of what your inheritance will be. You can pay off your second loan once the inheritance is received, leaving you with only a low-rate conforming loan.

Apply for a first mortgage home loan.
Apply for a second mortgage.
 


 

 

        

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