A piggyback loan is used when a buyer doesn’t have 20% down.
This loan is considered a purchase money loan and goes in second place after
the first lien. In most cases we are seeing a combination that is 80/10/10
meaning you get an 80% loan, a 10% piggyback/second loan and you put 10% down payment.
Other combinations are 80/15/5 and an 80/20. All making a comeback..
By doing this it eliminates the requirement for principal mortgage
insurance (PMI)
We are seeing more lender’s in 2017 take on this risker
scenario not seen since before the 2008 mortgage crisis. These loans are an
alternative for the buyer who doesn’t want to pay mortgage insurance.
Mortgage insurance is paid on any loan that exceeds 80% loan
to value (LTV) there are several different ways (PMI) can be paid. I’ll go into
mortgage insurance on my next blog post.
Piggyback loans are typically at a higher rate than the
first loan and often made by the same lender.
I have seen some lenders match the rate of the first if the
borrower’s risk factors are low. Meaning the borrower has a higher credit score
and low debt to income ratio.
The only loan above 80% LTV that avoids PMI is a VA loan for our military
folks. The VA loan for purchase and refinance is 100% financing and the ability to add their VA funding fee and closing costs to the loan, so the Veteran has no out of pocket money required.
Great deal for our veterans.
I am not sure if bringing back the piggyback is a good idea
or not, they did cause their share of problems for both homeowners and lenders,
causing many foreclosures which is why they disappear for so many years. I see an ever changing environment in the lending industry with lenders taking on more risk. Good or bad not sure!
I think it’s important to make sure that you research the
difference between paying PMI or getting a second lien and the rates offered on
the piggyback vs the factor used for the PMI.
Other things to consider is the tax benefit of each and with
this new tax plan being introduced by our current president. Most of us can deduct
our mortgage interest and mortgage insurance but that is likely to change if
the new plan passes, at least to some degree depending on the size of your
mortgage.
Thank you for visiting my blog and I encourage
you to leave a comment or questions. Let
me know if my blog has helped you to answer any questions you had. I would love
to have ideas about what you all would like to learn about regarding financing
or real estate.
Go for it give me some ideas!
Roxy Redenbaugh
ACMC Loan Consultant
Mortgage
Coach
Branch Manager
NMLS #269926
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