How to Use a Second Mortgage in a Home Purchase

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Sometimes, getting a second mortgage can be a proactive step in making your new home purchase easier and less costly. We’re not talking about a second mortgage where you use a line of credit to pay off debt. We’re talking about using it as a piggyback mortgage to purchase a home. Why would you want to have two mortgages at once? There are a few particular situations where it makes perfect sense.

One thing you run into when buying a home is mortgage insurance. If you don’t put at least 20% down, you are going to have to pay it. Depending on a number of factors, it can get quite expensive. Most people don’t want to pay mortgage insurance, but many people can’t afford to put 20% down on a home either.

The other reason for getting a piggyback mortgage is because of loan limits. The majority of the country, with the exception of a few extremely high priced markets, has a $417,000 loan limit. If you wanted to borrow more than that, you would have to get what’s called a “jumbo mortgage.” These typically have higher interest rates than regular mortgages and often times have more red tape involved.

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Each situation is different.

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Using a second mortgage in conjunction with your first mortgage can accomplish a few different things. First, it helps you avoid a cumbersome loan process while getting a better-blended interest rate (the average of the two interest rates). This blended rate is often better than a jumbo mortgage rate would have been.

Another way you can use a jumbo mortgage is if you don’t have 20% to put down on the home, but you still want to avoid paying mortgage insurance. You can get one mortgage for 75% to 80% of the home’s value, then get a second mortgage for 10% to 15% of the home’s value. You could end up borrowing 85% to 90% of the home’s value without having to pay mortgage insurance.

There are all kinds of options, and each situation is a little different. Sometimes, it makes more sense to do a jumbo loan or pay mortgage insurance than it does to get two mortgages at once. That is why you need to partner with a professional who can give you the recommendations and the advice so you can be certain you are structuring your loan in the way that is right for you.

If you have any questions for me or my team, give us a call or send us an email. We look forward to hearing from you.