Your Mortgage: When doing two loans makes sense

Shawnee Mission Post Sponsor - September 18, 2018 9:39 am

Mike Miles

By Mike Miles

The idea of a home buyer doing two loans to finance a home purchase is gaining popularity. It’s natural to have some reservations about the idea, considering the housing crisis about 10 years ago. However, back then buyers were able to use two loans to finance 100 percent of the home’s value and that’s not the case today. In fact, buyers can borrower more equity doing one loan than they can when using two loans. A buyer doing two loans will still need to put 10 percent down at closing … meaning they can finance up to 90 percent of the price.

Below will be a brief explanation of when using two loans makes sense.

Avoiding private mortgage insurance (PMI)

Mortgage insurance is required on conforming and jumbo loans when a buyer puts less than 20 percent down at closing. In some cases, that PMI can get expensive. Doing two loans can help to avoid PMI. If a buyer chooses to do this, the first loan would most likely be for 80 percent of the price with the second loan being up to 10 percent for a total of 90 percent.

Example:

Purchase price: $400,000
Loan #1: $320,000 (80% of $400,000)
Loan #2: $40,000 (10% of $400,000)

Avoiding jumbo mortgage rates

Jumbo loans start at $453,101. Jumbo rates typically are about .25 to .5 percent higher than conforming rates. For a jumbo buyer to avoid PMI, the 20 percent down payment can be hefty and potentially challenging. This is when doing a second loan can help. In this scenario, a buyer could finance up the conforming loan limit and add the second loan behind it.

Example:

Purchase price: $700,000
Loan #1: $453,100 (65% of $700,000)
Loan #2: $176,900 (25% of $700,000)

This example still maintains a 10 percent equity position required to be put down at closing and it maintains conforming rates on the first loan.

Create the ability to reuse equity

Second loans can be in the form of a fixed-end installment loan. This is a traditional loan where a balance is borrowed and repaid over an amortized schedule. Second loans can also be in the form of a home-equity line-of-credit. This is more of a credit card collateralized by the house. As you pay down the balance, the credit limit can be reused for another purpose. This can be useful in the future for things like home improvements, education expenses, or debt consolidation.

Loan options and scenarios are truly endless, so it’s important to talk to an experienced mortgage professional. The advice is always free, so please reach out if you’d like to explore your options.

This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268

Sponsored Post

Your Mortgage: How to qualify for a loan without a regular salary

By Mike Miles There are several ways in which employees can be paid. For those that are paid a straight salary, qualifying for a

Sponsored Post

Your Mortgage: Divorce and loan qualifying … part 2

By Mike Miles Last week’s post introduced some basics concerning what to be aware of when borrowers are coming out of a divorce after

Sponsored Post

Your Mortgage: How divorce relates to loan qualifying

By Mike Miles Divorce is a major event. Lives are about to be turned upside down and inside out. Parenting, childcare, liabilities and assets,

Sponsored Post

Your Mortgage: Tips to avoid messing up your closing date

By Mike Miles Congratulations! You found a house and you’re under contract! Now you get to start thinking about things like decorating, which furniture

Sponsored Post

Your Mortgage: A big dream. A little luck. And a lot of great people.

By Charity Ohlund, Director of Business Development A big dream. A little luck. And a lot of great people. That’s what it took to

Sponsored Post

Your Mortgage: Rate update

By Mike Miles The Federal Open Market Committee (FOMC) recently met and decided to maintain the current federal funds rate (also known as the

Sponsored Post

Your Mortgage: My appraised value is higher than my contract price…I have extra equity right?

By Mike Miles There is an easy answer to this question, but everybody rolls their eyes when they hear it. Ready for it? The

Sponsored Post

Your Mortgage: Call for backup … adding non-occupying borrowers

By Mike Miles There’s an old cliché that goes something like this. “It’s more fun to give than it is to receive.” Today’s post

Sponsored Post

Your Mortgage: Getting your final approval — some steps explained

By Mike Miles Congratulations! Your loan is at the final approval stage, and it’s almost time to celebrate. All that’s left is for the

Sponsored Post

Your Mortgage: Is it worth it?

By Mike Miles There is more to financing a home than most people think. No single borrower is the same as another, therefore no


Page 1 of 1712345...10...Last »