Two Home Loans

Many homeowners are finding that instead of enduring the higher interest rates of a jumbo loan, they can piggyback loans, which essentially means that they obtain two conventional loans instead of a single jumbo mortgage.

A jumbo loan is typically defined as one that exceeds $417,000, with higher-cost areas having a jumbo loan as anything in excess of $625,000.

The piggyback process became popular in the early to mid-2000s when the real estate market was sizzling and hot. As housing prices soared, many people couldn’t afford the traditional 20-percent down payment and to avoid higher interest rates, they simply took out two loans. Often, one of these loans would be at 100-percent for 80-percent of value and the remaining loan would be for 100-percent of the 20-percent value.

While nearly a decade ago jumbo home loans were considerably higher than conventional rates, with mortgage rates at an all time low, many jumbo loans are now boasting rates as low as 3.65-percent. This is eliminating the need for piggybacking loans, which ultimately helps homeowners.

An additional issue with two home loans includes double closing costs, and many lenders will not permit double loans on residences. Often times, homebuyers have to borrow money from two different lenders, which makes the transaction much more difficult and time consuming for all parties involved. Some lenders also require that if a second mortgage is paid off early, the borrower will incur substantial fees. This is cost-prohibitive, especially if someone doesn’t plan on living in his/her home for 30 years.

For loans that exceed $1 million, many lenders are requiring two separate appraisals. Due to the substantial risks involved in jumbo loans, many lenders are valuing appraisals and the loan-to-value ratio.

While borrowers can easily obtain 80-percent loan-to-value ratios for jumbo loans, the true discount is 65-percent.

If a homebuyer is trying to determine if a single jumbo mortgage or piggybacking two mortgage is more cost efficient, he/she should weigh the following:

• Always read the lender’s disclosure statement to see if two loans is cost prohibitive.
• Taking out a second mortgage can easily prevent a future home equity line of credit from being approved.
• People need to determine what is the best use of their cash and where they can generate the best return.

Better Than Loans specializes in hard money loans from $50,000 to $25 million. They offer fast loan funding and as a direct lender company, they have great flexibility in loaning on a variety of property types.