Posts Tagged ‘loans’

Piggyback Mortgage Loan Information

A piggyback loan is a mortgage loan in which the financing is handled by two different lenders. The first lender finances a large portion of the loan, usually 80% and another seperate lender finances the remaining balance of the loan. There are three common options of piggyback loans, 80-10-10 loan, the 80-20 loan (also known as the 80-20-0 loan) and the 80-15-5 loan.

An 80-10-10 loan is when the first mortgage finance company finances 80% of the loan amount, the second finance mortgage company finances 10% of the loan balance and 10% of the balance is paid down by the purchaser. The 10% financed by the second lender is basically a second mortgage on the home.

An 80-20 loan is when the first mortgage finance company finances 80% of the loan amount and the second lender finances the remaining 20% of the loan as a second mortgage. No down payment is paid by the borrower or there is already some equity in the home.

The final typical type of piggyback loan is the 80-15-5. The first lender finances 80% of the mortgage balance. The second lender finances a second mortgage for 5% of the loan amount and 5% of the balance is paid down by the buyer.

The biggest pro of a piggyback loan is that 20% of the home value is paid for through a down payment or by the second lender. This means that the first mortgage lender doesn’t charge PMI or private mortgage insurance. Private mortgage insurance is a third party insurance required by lenders if you do not have 20% equity in your home. It protects lenders from borrowers in case they file bankrupsy. A piggyback loan reduces the loan risk of the lender because they aren’t financing the entire amount. Avoiding PMI can save you hundreds of dollars per month depending on the equity and financing terms.

There are three major cons of a piggyback loan. First, you already have a second mortgage on your home. If you ever have an emergency where you need to use your home as equity it will be very difficult since you already have a second mortgage on your home. The second major con is that the second mortgage will haev a higher interest rate than a normal loan with PMI. Sometimes the interest rate can be 2% or 3% higher. Even though your monthly payment may be lower you will end up paying more for the loan in the end. The third major con is that PMI drops off after you have 20% equity in your home. This could happen quick if you overpay your minimum monthly payments. If you don’t have a piggyback loan your payment will decrease once PMI drops off, with a piggyback loan you are stuck with the second mortgage payment until it’s completely paid off.

In my oppinion in most cases you are better off to avoid a piggyback loan. Even though you will have a smaller monthly payment up front you will pay more in the end. Do the math for you own individual situation before you close the loan!

Land Loan Mortgage Information

Land loans or land mortgages are designed for borrowers who are planning on building a home but aren’t ready right now. They are planning on building their own home in the near future and at that point will be looking for a construction loan.

Mortgages on Land loans are usually not as easy to obtain as a mortgage loan on a home. Usually interest rates are also slightly higher and financing terms are not as flexible. Many times interest rates will be 2% or 3% higher than a home mortgage interest rate and you won’t be able to get a 30 years fixed interest rate land mortgage. Many lenders will also require a down payment of at least 20%.

The reason for the restrictions is because the loans are much riskier for the lenders. The loan’s collateral, the vacant land, isn’t currently being used for anything. If you don’t have a house on the property you’re not as motivated to make the monthly payment. If the land gets foreclosed on you don’t really lose anything except what you’ve paid into the property.

The good concept of purchasing land is that the’re not making more of it. More than likely land will only appreciate in value as time passes. Purchasing land now may be the smartest investment you can make.

FHA Home loan information

FHA home loans are a great way to purchase or refinance your next home. When it comes to mortgages there many different possibilities for financing. The best way to decide which type of loan is best for you it to be informed and educated about all the different types of loans available (FHA and Conventional). Here is some valuable information about FHA home loans.

A FHA home loan is a mortgage that is insured by the Federal Housing Administration, a United States government agency.  FHA loans were designed by the government to allow lower income families an opportunity to purchase a home. Today FHA home loans allow borrowers to purchase homes with smaller down payments, less than perfect credit and higher debt to income ratios. There are disadvantages of FHA loans including PMI or mortgage insurance, more strict property requirements, maximum amount a loan can be, and possible additional income tax penalties if you sell the property too soon.

Before you decide which type of loan to pursue consider all the pros and cons of each type of loan.