Obtaining a mortgage should be viewed like any other financial strategy you implement. You want to figure out what makes the most financial sense for your particular situation.
In some purchase situations, you may find it makes more sense to get a first and second mortgage loan versus one large loan. Two examples of when this might make sense:
A first and second mortgage loan can be a great strategy when you want to borrower more than the conventional conforming loan limits offer. For instance, lets say you are buying a home in Tampa, FL for $850,000 and want to put 20% down. Your loan amount would be $680,000. This would be considered a Jumbo loan at the time of this writing. Jumbo loans are a great product but the requirements can be more stringent than with a conventional loan. In addition, there isn’t as much of a secondary market for Jumbo loans so you may face higher interest rates than with a conventional loan. In this case, it may make sense to get a first mortgage for $647,200, the maximum conventional loan allowed in Hillsborough County, and a second mortgage for the remaining, $32,800.
Note: The maximum conventional loan amount is determined by the county the home is in and changes annually.
A first and second mortgage loan can be a great strategy to avoid mortgage insurance without putting 20% down. In this case, let’s say you are purchasing a home in Sarasota, FL for $550,000. You would like to put down around 10% and borrower 90%. However, lenders require mortgage insurance whenever you borrow more than 80% of the purchase price. (If they say they don’t, it means they built the cost of the mortgage insurance into the rate.) To avoid paying mortgage insurance, you could obtain a conventional mortgage for 80% LTV (Loan-To-Value) and a second mortgage for 9.99%. Total amount borrowed 89.99%. Total amount out of your pocket for the down payment, 10.01%. Mission accomplished: 10% down and no Mortgage Insurance!
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