One of the current topics in the mortgage industry is creative financing. In practice, creative financing is far less exciting than it sounds but can be effective in the right scenario. One of the creative financing methods for most borrowers is piggyback second mortgages.
While many consumers are familiar with second mortgages, what they are not familiar with is the difference between a ‘standalone’ second mortgage and a ‘piggyback’ second mortgage. A standalone second mortgage is a mortgage that is taken out well after the first mortgage transaction closes. On the other hand, a piggyback second mortgage is generally taken out concurrently with the closing of the first mortgage or quickly thereafter.
There are a few separate reasons why piggyback second mortgages can be beneficial for borrowers.
One way in which it can be advantageous is to lower the down payment required to meet the 20% threshold required to remove private mortgage insurance. A common example of this would be a borrower who has a 10% down payment obtaining a second mortgage for the other 10%. This is not commonplace, as conventional lending can accommodate this more readily, especially in a higher rate environment.
Another reason to obtain a piggyback second mortgage would be to keep the first mortgage amount under a certain loan amount threshold. Residential mortgages generally have three different categories for loans of certain sizes: Conforming, High-Balance, and Jumbo. By utilizing a second mortgage, a borrower can keep their first mortgage in one of the more favorable categories, helping their loan terms and underwriting requirements.
Arguably the best reason to utilize a piggyback second mortgage would be if a borrower is able to assume the first mortgage from the seller. Assuming the mortgage allows the borrower to take over the first mortgage from the seller entirely with the same terms in place. The typical issue with loan assumptions is that they often require a large down payment from the buyer/borrower, but a piggyback second mortgage can be used to bridge the gap.
In conclusion, piggyback second mortgages are a great creative financing option for the right lending scenario. In today’s current economic landscape, being able to optimize for the lowest housing payment possible is more important than ever. It is important to have a well-versed loan officer with these options available to you in your corner.
Wondering if a piggyback second mortgage could be the right option for you? At Bluefire Mortgage Group, we’re here to help you explore your financing options and find what works best for your situation. For questions or to learn more, give us a call at (760) 930-0569.
