Piggyback Mortgage Financing Is Making A Comeback
Many of us were looking back to the old good days before the real estate bubble burst. One could acquire a house with no down payment at all. The popular piggyback loans were one instrument that gave you the possibility to become a proud owner of a house. And without saving first for a longer or shorter period of time.
Good News! Purchase Money Second Mortgage commonly called piggyback loans
are back in the saddle again. It was the time for this super comeback for lately, home value appreciated constantly (in 40 months out of 41).
The new piggyback loans differ from the ones before Great Depression. They do not allow zero down payment regardless of your credit score and your credit worthiness in general.
For those who never used them and/or are not familiar with the product we can tell that:
- A piggyback loan means you will have two mortgage loans, instead of one. This combination will allow you to purchase a house with a lower down payment without being forced to also bear the monthly costs of a Private Mortgage Insurance (PMI).
- One of the mortgage loans is the main part of the loan-to-value (LTV), usually covering 80 percent of LTV. This loan is a fixed rate mortgage, closed end and fully amortizing for 10, 15, 20, 25 or 30-year term only. And if kept at or below the conventional maximum amount in Clark County of $424,100, then you can also avoid jumbo rate increases.
- The second loan is functioning like a fixed rate second. This second loan covers most of the time 10% of the LTV. The payments will also be fixed as well as the rate. This is different from our older models of seconds that worked with an adjustable rate. Making them fixed takes away some of the added risk that is inherent in a second home loan.
- The other 10 percent, in this example, is your down payment
- This piggyback loan structure is known as 80/10/10.
- Other loan structures also available but not limited to are: 80/15/5 or 75/15/10 to accommodate different client needs and wants.
Using structures like 80/15/5 or 80/10/10 you avoid the PMI and the monthly costs associated, for the first lien is 80 percent LTV and a PMI is no longer a must.
The 75/15/10 is mainly used for condominium purchasing for mortgage rates for condos are higher when the LTV of the first lien exceeds 75%. In this case, the piggyback loan is allowing you to qualify for regular interest rates.
Piggyback loans are also convenient for people who want to buy a new home but haven’t sold their old one. We all know it is more convenient and less stressful to move from your current house to a new house without saving for a high down payment. Especially if when your current property will provide the down payment needed when sold. The piggyback loans and their flexibility will allow this type of borrower to buy the new house they’ve dreamed of. Later, when they sold the old house you can fully pay off that piggyback second
. Thereby diminishing the costs associated with the mortgage loans.
Piggyback loans can also be the solution for those who need nonconforming loans, jumbo credits that exceed the limits set by Fannie Mae and Freddie Mac. The 2015 single-family limit was set at $424,100 in most areas, and $625,500 in high-cost areas like New York.). By using this product a jumbo credit can fit the limit imposed by Fannie Mae and Freddie Mac and the jumbo borrower can enjoy the benefits of a regular credit.
In conclusion, as you probably know, the mortgage rates are now low and home prices are increasing so it is a good time to act if you plan to buy a house even if you don’t have the required 20 percent down payment for the piggyback loans are available again offering a new window of opportunity. Of course, there are eligibility requirements but don’t give up without even checking. If you fit the requirements and your Housing (Mortgage/Rental) Payment History (PITIA) is good you will be in no time the proud owner of a house.