As lenders in Utah are becoming less conservative these days, it’s not unusual to come across a piggyback loan. In a nutshell, it’s a combination of two mortgages – first and second – to split the loan amount and possibly enjoy a blended rate. The first one is the usual lump sum you borrow to buy the property while the second comes in a form of HELOC, or home equity line of credit.
It’s not easy to wrap your head around the idea of holding two mortgages at the same time. However, for starters, wasatchpeaks.com explains the benefits of piggyback loans.
Let’s say the loan amount you’re eyeing is considered jumbo. Cutting it into two could render your first loan conforming. Now, if you stay under the set limit, the lender would consider you less risky, thus allowing you to access to lower mortgage rates in Ogden, Provo, Salt Lake City, and Sandy.
Half or No Down Payment
Piggyback loans generally come with an 80 percent LTV, but depending on their structure, you can just pay 10 percent down payment instead of 20 percent, or even pay no cash at all. As you know, a small down payment requirement makes it easier for you to set your foot in the real estate market. Besides, 10 percent is a decent number to have enough home equity to begin with.
On the other hand, if you choose to go with the zero down formula, you risk keeping your head above the water should home prices crash or at least dip a little bit over time. But in return, you’d get a higher limit in your HELOC.
Completely avoiding the Private Mortgage Insurance is one of the main selling points of piggyback loans. Because you’d only borrow 80 percent on your first mortgage, you’re no liable to pay for this expense that absolutely has no use for you.
Piggyback loans are quite complex, so you better speak with an experienced broker to walk you through them. Without professional advice, it’s easy to fall prey to their hidden traps and struggle to escape.