Alternatives To A Piggyback Loan
Piggyback loans were common before a lot of low-down payment mortgage programs became mainstream, McBride says. If youre stressing over that 20 percent down payment, there are a number of first-time homebuyer loans and grants that can help you move into a home for less upfront money without the added layer of a piggyback loan:
- FHA loan Backed by the Federal Housing Administration, an FHA loan allows you to get away with as little as 3.5 percent down on a home purchase. You can also qualify for this loan with subpar credit. The program requires a minimum credit score of 580 for the 3.5 percent down payment. If your credit score is between 500 and 579, youll need to put down 10 percent.
- Conventional 97 Fannie Mae and Freddie Mac, the two government-sponsored enterprises, help make mortgages available with as little as 3 percent down.
- VA loan If youve served or are active in the military, youre eligible for a loan backed by the U.S. Department of Veterans Affairs, and you dont have to put any money down to get it.
With a low-down payment program, youll be able to write a smaller check, but depending on your lender, also might be required to expand your home-buying knowledge. For example, Bank of Americas low-down payment loan program stipulates that borrowers might need to complete homebuyer education courses. However, investing a few hours of your time is a small price to pay to be able to afford your own place.
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With a nearly 60-year history, Fremont Bank is proud to provide a full range of banking and lending services to home-buyers and homeowners.
*Offer available for new applications submitted by 9/30/22. The introductory rate applies to new Home Equity Lines of Credit on single family, primary, second homes and investment properties purchase combo second liens. The promotional Annual Percentage Rate for the first 6 months will be fixed at the 3.49% for primary and second homes, and fixed at 4.99% for investment properties. After the introductory rate period ends, the loan will become a variable rate loan and all remaining balances will convert to the variable rate based on the Prime Rate in effect as published in The Wall Street Journal, plus a margin, per the terms of borrowers credit agreement. All home loan programs are subject to credit qualification, income verification, and collateral evaluation. Additional restrictions, limitations and exclusions may apply. Property insurance, may include flood insurance, required.
We may reduce or suspend your credit limit if any of the conditions that existed at the time your HELOC was opened change significantly, such as the value of your home declines, we reasonably believe you may no longer be able meet the repayment terms, or you default on a material provision of your HELOC agreement.
Consult your tax advisor regarding the deductibility of interest and charges.
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The 80/10/10 Loan Structure
The 80/10/10 is another common reference to piggybacks and, today, their availability is returning.
With home values up, banks are re-opening access to 80/10/10s. This is helping to promote homeownership nationwide especially among homebuyers who have to buy a home before their current one is sold.
Piggyback mortgages make loans available with just a 10% down payment while helping buyers to avoid the mortgage insurance payments typically associated with low-downpayment loans.
80/10/10 piggyback loans are commonly used to avoid PMI mortgage insurance or stay under the jumbo loan limit.
Other buyers will use piggyback loans because theyre buying a home that exceeds their local mortgage loan limits.
Via the piggyback loan, they can borrow up to $510,400 with their first lien, and then borrow the additional amount required via a second loan.
As an illustration, a buyer plans to make a 10% down payment on a $700,000 home where the local loan limit is $560,000. He or she may opt for a first mortgage of $560,000, a second piggyback mortgage of $70,000, then put $70,000 down.
Want to buy a home but dont have 20 percent to put down? The piggyback loan may be a good fit.
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Are Piggyback Loans A Good Idea
Piggyback loans, also called combination mortgages or 80-10-10 loans, are home loans consisting of two separate mortgages. With a piggyback mortgage, you can buy a property with just a 10% down payment but avoid paying the mortgage insurance that’s required when a down payment of less than 20% is made on a conventional mortgage.
Piggyback mortgages are nothing new, but they declined in popularity after the mortgage lending crisis of the late 2000s. Lately, they are making a comeback as housing markets gain strength.
How To Get A Piggyback Loan
Getting two mortgages at the same time adds a few steps to the standard mortgage process. With a piggyback loan youll have to:
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How Can You Apply For A Piggyback Loan
The how is actually pretty straightforward youll simply want to ask your first mortgage lender for suggestions on a second mortgage. Sometimes theyll underwrite it themselves, and other times theyll refer you out to multiple financial institutions to rate shop with. We dont really curate a list of the best piggyback lenders because it all depends on where your first lender sends you.
If youd like to explore your options for a piggyback before you commit to a first mortgage, you can simply ask your prospective lenders what their piggyback process looks like. Even better, if youre able to connect with a loan officer, you can take a step back and ask if a piggyback is even your best option. That particular lender might have its own program thats a better fit for your unique financial situation.
For a curated list of the best lenders with the lowest rates, check out our article: Best Mortgage Rates Mortgage Rates Updated Daily.
Home Equity Line Of Credit Benefits
Competitive Interest Rates
Interest rates are generally lower than for other types of credit, like credit cards and auto loans.
Funds When You Need Them
Access available funds during the draw period with a check, transfer to your Fremont Bank checking account, or withdrawal at a branch.
Flexible Payments
Only make payments on the portion you use.
Revolving Credit Line
As you pay down the balance, the credit line amount becomes available for use again during the draw period.
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Have 10% Down Consider A Piggyback Loan
Not all buyers qualify for FHA loans. Even fewer can gain access to a VA loan. If those two programs backed by the federal government dont work for you, you might be able to return to private lenders for a piggyback loan.
- Good credit, to qualify for both loans at the same time.
- Strong income and cash flow, to keep their debt-to-income ratio manageable even with the second loan
- Great money management skills and confidence in their ability to manage two separate loans and pay them off on time
What Are Piggyback Loans
People will do anything to save money, especially when purchasing a house. When it gets to closing time and you start crunching your monthly payment, your private mortgage insurance may seem like just the thing to toss overboard. Once itâs gone, youâll be able to loosen your belt a little and still have the house of your dreams, right? Well, youâll still have your house, but the alternative to private mortgage insurance may not be the dream youâve been hoping for.
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Pros And Cons Of Piggyback Loans
Pros
You can avoid mortgage insurance
You may avoid jumbo loan financing
Youre building equity faster with a 15-year fixed balance on the second mortgage
You can pay off the second mortgage balance so youre left with one lower mortgage payment
Cons
Youll have to pay closing costs for two loans and juggle two mortgage payments
You may have challenges qualifying for the second mortgage
Youll likely pay a higher interest rate on the second mortgage
Youll net less if you suddenly have to sell your home and the value has dropped
Investor Cash Flow Mortgage Loans
Investor cash flow loans are a great way to get the financing you need for your investment property. With these loans, you can borrow against the equity in your property to get the cash you need. This is a great alternative to conventional home loans since theres no personal income required to qualify. It also saves time from dealing with complicated paperwork and tax returns. But, first, it is essential to understand how these loans work before applying for one.
Investor cash flow mortgage loans are typically interest-only loans. This means that you will only be required to make payments on the loans interest for the first few years. After the interest-only period ends, you will be required to begin making payments on the principal of the loan. Investor cash flow mortgage loans can be a great option for those looking to finance their investment property.
Investor cash flow loans can be for as little as $75,000 all the way up to $2.5 million. Investor cash flow loans look specifically at the cash flow of your existing property , and you arent required to disclose your employment or income from other sources.
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Take Out A Bridge Loan
Are you considering a piggyback loan because you’re moving and haven’t sold your house yet? A bridge loan might be a better fit.
This is a short-term home loan that helps you bridge the gap between when you buy your new home and when the finances from selling your original house come in. You can usually borrow up to 80% of your original home’s value, and the term is six months to one year. You may prefer a bridge loan if you want a shorter-term second loan so you don’t have two make two mortgage payments for a long time.
Your choice between a piggyback loan and other options will probably come down to your finances and the cost of houses in your area.
Can You Use A Piggyback Loan For An Investment Property
Investing. Using a piggyback loan to get an investment property just might be the boost you need to start off your investing company. If you put money toward both premiums each month or better yet, pay the second one off altogether youll be much better off than if you had used a private mortgage insurance.
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Typical Piggyback Loan Packages Are:
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80-20 80% of the loan for the purchase of the property is taken out first. Then the 20% that is left is taken out as another loan in the form of a HELOC or home equity loan. As we mentioned earlier in this article, this is less common today than it was a decade ago.
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80-15-5 80% of the loan for the purchase of the property and then 15% is taken out as a HELOC or home equity loan. The remaining 5% is put down by the buyer.
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80-10-10 80% of the loan for the purchase of the property and then 10% is taken out as a HELOC or home equity loan. The remaining 10% is put down by the buyer. Obviously, this depends on what is best for the buyer and how much money they can actually put down. An 80-10-10 loan is much more cost effective for people with great credit scores. For those with a less-than-stellar credit score, the secondary mortgage is often a HELOC. These can have a particularly high interest rateand they are variable, which means they may get even higher over the life of the loan.
Buyers considering this financing should compare the costs of a second mortgage with the cost of a bigger first mortgage plus mortgage insurance. They should compare the after-tax costs, because borrowers with higher incomes may not be able to deduct mortgage insurance, but they may still be able to write off mortgage interest.
What Is A Piggyback Second Mortgage
Tip:
If youre considering a piggyback mortgage, here are some questions to ask yourself:
Tip:
If you have a problem with your mortgage, you can submit a complaint to the CFPB online or by calling 411-CFPB .
Tip:
If youre behind on your mortgage, or having a hard time making payments, you can call the CFPB at 411-CFPB to be connected to a HUD-approved housing counselor today. You can also use the CFPB’s “Find a Counselor” tool to get a list of U.S. Department of Housing and Urban Development -approved counseling agencies in your area.
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How Do Piggyback Loans Work
An 80 10 10 or piggyback loan describes two loans that are opened simultaneously, usually to purchase a home. One loan piggybacks on top of the first loan to cover a bigger percentage of the homes purchase price.
The first mortgage is for 80% of the purchase price. Then a second loan is opened at for a value of 10% of the price. The second loan is often called a second mortgage, home equity line of credit , or home equity loan.
The borrower makes a down payment for the remaining 10% out of their own funds.
There are other types of piggyback mortgages besides 80/10/10s, such as an 80/5/15, and 80/15/5. The second number always describes the second mortgage, and the third number describes the down payment.
Details About The Piggy Back Loan Program
The PiggyBack loan program uses a first mortgage product as well as a second mortgage product to facilitate above-average loan-to-value transactions. While both loans are secured against real property, a borrower can use the combined loan-to-value features of the program to avoid paying mortgage insurance.
Borrowers with a 720 FICO score or greater may apply for a purchase money loan or a rate and term refinance loan on an owner-occupied property or a second home. In fact, the program is available on single-family homes, condos, and PUDs as well.
With MortgageDepot borrowers may obtain a mortgage loan for as much as one million dollars via the Piggy Back program. The CLTV thresholds are capped at 89.9 percent of the subject propertys appraisal value.
Considerations
The PiggyBack loan program does not allow cash-out on the first or the second lien. The programs maximum loan amount on a fixed-rate home equity loan is $500,000. Borrowers may obtain a home equity line of credit for as much as $350,000.
To avoid mortgage insurance on a purchase transaction, a borrower is generally required to supply certified funds that equal 20 percent of the propertys selling price. The PiggyBack loan program would require less money from the borrower at settlement.
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What Is A Piggyback Mortgage
A piggyback mortgage is when you take out two separate loans for the same home. Typically, the first mortgage is set at 80% of the homes value and the second loan is for 10%. The remaining 10% comes out of your pocket as the down payment. This is also called an 80-10-10 loan, although its also possible for lenders to agree to an 80-5-15 loan or an 80-15-5 mortgage. In either case, the first and second digits always correspond to the primary and secondary loan amounts.
The Advantages Of A Piggyback Mortgage
People often take out piggyback mortgages to avoid private mortgage insurance. Also known as PMI, this is the insurance policy that the lender requires you to have when youre putting less than 20% down on the home. If you were to default on the mortgage, PMI ensures that the lender is able to regain the amount of money that was lost.
The amount you have to pay for PMI varies based on the size of your loan. Typically, its between 0.3% and 1.5% of the loan value. And when you go with a piggyback mortgage, the PMI rules dont apply, so it doesnt factor into your monthly mortgage payment calculation.
This kind of loan can make sense if youre planning to borrow a substantial amount. Jumbo loans are mortgages that exceed the loan limits set by Fannie Mae and Freddie Mac. Some jumbo borrowers choose to get two mortgages because they can get a lower interest rate on the first loan. This also gives the option of paying off the second loan quickly and saving on interest payments.
As an added benefit, you can deduct the interest you pay on both the loans from your taxes. Just keep in mind that the mortgage on the second loan is only deductible up to the first $100,000.
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