If you are a prospective homebuyer with little or no down payment there are options to help you finance your purchase. Piggyback mortgages can be structured to cover your down payment and closing costs. Here is what you need to know about this creative financing option.
Piggyback mortgages are sometimes referred to as second mortgages or second trust loans. These loans combine with your primary mortgage to provide the necessary down payment to purchase your home while avoiding the evils of Private Mortgage Insurance (PMI). There are even 103% financing options to help homeowners that are strapped for cash pay their closing costs.
Piggyback mortgages come in varying amounts; the most common variety is an 80/10 mortgage. This designation means your primary mortgage covers 80 percent of the purchase price, your piggyback mortgage covers 10 percent, and you pay the remaining ten percent. This type of piggyback mortgage is cheaper than financing the entire 20 percent down payment; however, there are 80/20 loans available for homebuyers that have not saved the remaining 10 percent. Another common variety of piggyback mortgage is the 80/15 mortgage which only requires you to pay only 5 percent of the down payment.
The disadvantage of using this type of financing is that you will have two mortgage payments to make each month, unless you can find one lender willing to finance the entire amount. The advantage of the piggyback loan is that your combined monthly payments will still be less than if you had to pay for Private Mortgage Insurance to qualify for your primary mortgage. Private Mortgage Insurance can easily add hundreds of dollars to your monthly mortgage payment and does nothing for you, the homeowner. You should avoid paying Private Mortgage Insurance at all costs.
You can learn more about your mortgage options, including how to avoid common mistakes, by registering for a free mortgage guidebook.
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Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing: What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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