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Piggyback Mortgages

Piggyback Mortgages are making a comeback

For home mortgage loans over $417,000, piggyback mortgages are making a huge comeback.

According to the 2013 Annual Real Estate Survey of the American Bankers Association:

Piggyback mortgages accounted for 3.8 percent of all loans originated by bankers surveyed in 2012, compared to 1.7 percent of the loans for 2010.  To read more reports click here.

A Piggyback Mortgage loan means a home mortgage borrower is being underwritten for two mortgages simultaneously.  The second mortgage can be structured as a home equity loan or a home equity line of credit.

Piggyback mortgages lost their popularity in the housing downturn, but now they are returning.  They are used to avoid paying for mortgage insurance when a borrower does not have 20% down.

When the lender has more than an 80% loan to value on a property, they require mortgage insurance from the borrower.  Getting around paying for this mortgage insurance is the purpose of the piggyback loan.

 How to Avoid mortgage insurance with a Piggyback Mortgage

  • Down payment:  10 percent of the purchase price or appraisal value, whichever is lower.
  • 1st Mortgage:  80 percent of the purchase price or appraisal value, whichever is lower.
  • 2nd Mortgage:  10 percent of the purchase price or appraisal value, whichever is lower.

But there is still another great reason to use a piggyback mortgage:  to avoid going over the conforming loan limit.  The conforming loan limit is $417,000, and when you borrower more than $417,000 the mortgage is called a jumbo loan, and they tend to have higher interest rates.  Sometimes it can be advantageous to get a mortgage for the full amount, and sometimes it costs less to use a piggyback mortgage.

It is really a game of mortgage comparisons.  To get a free mortgage options analysis for your particular situation, click here.

 Disadvantages of a Piggyback Mortgage

  • When it comes time to refinance, the mortgage company that holds the 2nd mortgage has to agree to remain in 2nd lien position on title.  This is called a subordinate lien position, behind the primary mortgage company.  The agreement we will need is called a re-subordination, and they are usually pretty simple to apply for.
  • It is not easy to tap into the home equity, as 3rd mortgages are not usually allowed.
  • The inconvenience of making two separate payments instead of one.
  • Requires a good FICO score.
  • Requires at least 10% down.

Have a question?  Ask it here.

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Posted in: Conforming, For Buyers, Jumbo, Mortgage Types

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