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Home Purchases
Refinancing
Home Equity Loans
Loan Types:
-Bad
Credit Mortgages
-Interest-Only
-Fixed Rates
-Adjustable Rates
--Traditional ARMs
--Option ARMs
-Conforming Mortgages: Fannie Mae/Freddie Mac
-Non-Conforming
-Piggy-back Financing
-Jumbo Loans
-Bridge Loans
-125%
Equity Loans
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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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