Buying a second mortgage for homes has transpired in a popular choice for homeowners who donít have the required reserves for home purchase. Purchase money second mortgages are becoming very common as the 80-20 home loan has evolved. Take a second to comprehend how second mortgage facilitates the home purchase process.
Letís say you decide to purchase a home but donít have 20% of the sales price to put down on the home.
- PMI- Years ago, people would simply pay a higher rate, and have to pay the pmi (private mortgage insurance) until their LTV (Loan to Value) is lowered to the 80% LTV threshold.
- 80-10-10- Option 2 is to meet the lender half way with a 10% deposit, and they offer you a 10% second mortgage for the other 10%. The other 80% is rolled into the traditional first mortgage.
- 80-20- No money. Like option 2 this solution is broken down into a 1st and 2nd mortgage. This option requires no money down The only ďout of pocketĒ expenses would be the costs of closing the loan.
This is also called subordinate financing. Be prepared for the interest rates of the 2nd mortgage will be higher than the first mortgage rate. The default ratio is higher on second mortgages, so the risk factors justify the lender charging a higher rate.