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Combo loans vs Private Mortgage Insurance (PMI)

Although financing the purchase of a home may appear to be a complex, especially to first time home buyers, the process becomes much more simplified through understanding basic mortgage lending terms. Before understanding the various mortgage lending programs, it is first helpful to understand two general financing structures. The first involves obtaining financing using a single loan. The second involves, obtaining a first loan with the remaining supplemented by a second loan. Whether you reside in Las Vegas, or another area in Nevada, it is important to understand the difference, before assessing which structure is most suitable & available to you.

Common inquiries as of late is homebuyers asking if they can obtain a home equity line of credit or a loan that has combo financing using an 80% first with a second. 

Understanding mortgage lending criteria, and financing structures requires knowing the meaning of the term Loan to Value Ratio (LTV).  A Loan to Value Ratio, put simply, involves a comparison of two figures—the amount of loan and value of the home being financed. For example, if you are looking to purchase a home that is valued at $100K and you are seeking approval of a loan for $100K, then your Loan to Value Ratio is 100%. Alternately, if the same $100K home is being purchased, but financing is only needed for $75K because you are making a downpayment of $25K, then your Loan to Value Ratio is 75%.  The Loan to Value Ratio is an important factor to consider because, together with your specific credit risk factors, it determines the availability, as well as the terms of your mortgage(s).

As a general threshold amount, a Loan to Value Ratio of 80% or more, will typically require the homeowner to purchase Private Mortgage Insurance (PMI). PMI is a monthly premium that is included within your mortgage payment, and which insures the mortgage lender for any deficit that results if the home is sold for less than the amount of the loan. Upon the principal balance of the loan falling below the mortgage lender’s threshold Loan to Value Ratio percentage, you are typically no longer required to pay PMI.

There are alternatives for home buyers seeking to avoid PMI, even those who are unable to make a substantial downpayment, such as obtaining dual mortgages. However, as a general rule, homebuyers can expect to pay a higher interest rate on the additional loans, as compared to the interest rate for the primary loan. This is due to the increased risk undertaken by the secondary lender(s). As such, potential homebuyers should evaluate which financing structure is most suitable, through comparing anticipated PMI premiums with interest amounts expected to accrue under secondary loans. 

Unfortunately due to the current mortgage climate in Nevada, as of now, we don't offer 2nd's above a 80% LTV.  The option Nevada home owners have is to utilize PMI structured loans to be able to borrow above 80% loan to value.  Additionally the only 100% financing available in the State of Nevada is that offered by a VA.  This could change in the future depending on investors tolerance and recovery of the mortgage market in Nevada.

If you own your home outright with no mortgage, then we can offer a 1st fixed rate mortgage in order for you to extract equity.

For more information on the Nevada Financing Structures,
contact Casey Moseman at 702-271-1274.


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